Incorporating monotonicity and concavity conditions in flexible functional forms

✍ Scribed by Dek Terrell

• Publisher: John Wiley and Sons
• Year: 1996
• Tongue: English
• Weight: 961 KB
• Volume: 11
• Category: Article
• ISSN: 0883-7252
• DOI: 10.1002/(sici)1099-1255(199603)11:2<179::aid-jae389>3.0.co;2-g

✦ Synopsis

Empirical economists using flexible functional forms often face the disturbing choice of drawing inferences from an approximation violating properties dictated by theory or imposing global restrictions that greatly restrict the flexibility of the functional form. Focusing on the cost function, this paper presents an alternative approach which imposes monotonicity and concavity properties only over the set of prices where inferences will be drawn. An application investigating elasticities for Bemdt-Wood data set using the translog, generalized Leontief, and symmetric generalized McFadden flexible functional forms illustrates the technique.

' The regular region is defined as the set of prices over which the flexible functional form adheres to properties implied economic theory. For a discussion of regular regions of other flexible functional forms, see Barnett, Lee, and