Re: st: Estimating the CES-Translog Production Function
Fri, 01 Apr 2011 19:58:37 +0100
I have been preoccupied with other business so I missed this thread
until today. Still, I would like to reinforce Nick's point but from
a different perspective.
Why are you trying to estimate a mixture of a CES and a translog
production function? This makes little sense in theory - a
(generalised) CES is a specific functional form, while a translog is
usually viewed as a flexible approximation to some unknown production
function. Even if you got some results there is no reason to believe
that the coefficients would make any sense. You should either
estimate a CES, for which NL is appropriate, or a full translog (with
the linear terms restored) which can be done with normal linear
regression. It is hardly surprising that you cannot generate
reliable results with this specification.
You may have the idea of testing the CES against the translog by
nesting them, but this is not the way to do it. In addition, you
ought to be aware that just estimating production functions without
thinking about how the input data is generated can be very
misleading. Hence, you should read up on production & cost functions
and how they can be estimated before you go any further. There are
plenty of books available but you could look at the chapter on cost
functions in Kenneth Stewart's "Introduction to Applied Econometrics"
or Ernst Berndt's text "The Practice of Econometrics".