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Re: st: Estimating the CES-Translog Production Function


From   Gordon Hughes <G.A.Hughes@ed.ac.uk>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Estimating the CES-Translog Production Function
Date   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".

Gordon Hughes
g.a.hughes@ed.ac.uk

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