Imposing and Testing Curvature Conditions on a Box-Cox Cost Function


Koebel, Bertrand ; Falk, Martin ; Laisney, François


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URL: http://ub-madoc.bib.uni-mannheim.de/515
URN: urn:nbn:de:bsz:180-madoc-5156
Document Type: Working paper
Year of publication: 2000
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: C33 J31 E23 J21 ,
Subject headings (SWD): Produktion , Analyse , Mikroökonomie , Box-Cox-Transformation
Abstract: We present a new method for imposing and testing concavity of a cost function using asymptotic least squares, which can easily be implemented even for cost functions which are nonlinear in parameters. We provide an illustration on the basis of a (generalized) Box-Cox cost function with six inputs: capital, labor disaggregated in three skill levels, energy, and intermediate materials. A parametric test of the concavity of the cost function in prices is presented, and price elasticities are compared when curvature conditions are imposed and when they are not. The results show that, although concavity is statistically rejected, the estimates are not very sensitive to its imposition. We find that substitution is stronger between the different types of labor than between any other pair of inputs.
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Koebel, Bertrand ; Falk, Martin ; Laisney, François (2000) Imposing and Testing Curvature Conditions on a Box-Cox Cost Function. Open Access [Working paper]
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