We illustrate these practical issues associated with applying each model through empirical examples using a set of quarterly u. Conventional econometric techniques build on this base to estimate productioncostprofit function parameters using regression techniques where deviations of observed choices from optimal ones are modeled as statistical noise. Stata module to create new variables for a translog. For a much more extensive discussion of various types of production functions and their properties, their relationships and origin, see chambers 1988 and sickles and zelenyuk 2019, chapter 6. As we have, for cobbdouglas production function, l f l f and k f k f, the optimum necessary condition becomes lw ke. An alternativetothecobbdouglasproduction function is the translog production function. The next obvious step is to generate a function which allows. The elasticities are evaluated at the sample means, so the means procedure is used to compute the sample mean cost shares and store this information in the dataset meanshares. The transcendental logarithmic cost function looks like the. Production function with factor augmenting technology.
The zeroobservation problem in production function analyses has been addressed in a number of different ways. Douglas production function were very similar to the expected factor shares. The cobbdouglas production function is still today the most ubiquitous form in theoretical and empirical analyses of growth and productivity. This allowed douglas to argue that the findings provided strong support for marginal productivity theory the laws of production. Calculating elasticities from a translog cost function overview elasticities of substitution are an important measure of production relationships. Devesh raval november 15, 2010 abstract both the recent literature on production function identi. I am not very familiar with its implications in consumer theory, but from the production point of view, ive seen it widely used. The frontier production function or production frontier is an extension of the familiar regression model based on the theoretical premise that a production function, or its dual, the cost function, or the convex conjugate of the two, the profit. A production function, such as the translog transcendental logarithmic production function, can be used to model how a firm combines inputs to produce outputs. Estimation of cobdouglas and translog production functions with capital and gender disaggregated labor inputs in the usa, journal of smart economic growth, vol. For a much more extensive discussion of various types of production functions and their properties, their relationships and origin, see chambers 1988 1 and sickles and. They maximize production, minimize cost, and maximize profits.
Sep 28, 2015 what are the different methods for dealing with multicollinearity in a translog production function. The name translog stands for transcendental logarithmic. Translogii user is used to run a text production experiments a user reads, writes or translates a text. Cobbdouglas production functions is a functional relationship between input and out put. If optimized cost rises slower than output, the scale effect is positive implying a declining average cost function. The translog function form is widely applied in empirical studies for it is regarded as the second order approximation to the unknown function. This function has both linear and quadratic terms with the ability of using more than two factor inputs.
The translog function is an attractive flexible function. A standard expression is to write scale effects as 1lncq. The empirical estimation of production and cost functions is a standard exercise in econometrics. Data on french apple producers in 1986 bleymueller79e25. Thus, y is a function of k, l, and all possible interactions kl, kk, ll. Fisher concluded that the conditions for successful aggregation of micro production functions into an aggregate production function with neoclassical properties are so.
Generate ces data and estimate the parameters of a translog production function. My question is about the results that i got after i did a regression on the translog production function for panel data. Heineke in this paper we study the relationship between costs, input prices and activity levels in a sample of approximately thirty medium sized city police departments for the years 1968, 69, 71 and 73. To our knowledge, this is the first study exploring aggregation issues with panel data by means of this functional form. Treating crops and livestock as two distinct outputs, this study utilizes standard results of. When i estimate the model using a cobbdouglas functional form, everything seems to be ok, however when i estimate a translog function i seem to run into a problems.
Hi everyone, i need to estimate the following translog production function. Translog the leading tool for analysing text production. This function can be approximated by second order taylor series christensen, et al. Both the recent literature on production function identification and a considerable body of other empirical work on firm expansion assume a. Translogii produces a log files which contains user activity data of the reading, writing and translation processes, and which can be evaluated by external tools see tprdb. Calculating elasticities from a translog cost function. Estimation of a ces production function with factor augmenting technology should be of use here.
This is a list of production functions that have been used in the economics literature. Ces production function 5 10 15 20 x1 5 10 15 20 x2 0 25 50 75 100 fhx1,x2l figure 7. The ces was a natural extension of the cobbdouglas in that it permitted the elasticity of substitution to be something other than unity. I am not interested in the estimation of the efficiency as suggested by the command xtfrontier but rather in the estimation of the elasticities of output with respect to my three inputs. The translog production function and variable returns to scale. The threeinput translog production function can be written in terms of logarithms as.
Its properties, its several interpretations and estimation problems a. Some aspects of the translog production function estimation. The estimation of the parameters of aggregate production functions is central to much of todays work on growth, technological change, productivity, and labor. The vcovmethod returns the covariance matrix of all linearly independent coef. The various ways of controlling text display makes it possible to know accurately what a subjects attention is focussed on at any. If the null hypothesis, when equals zero, is accepted, it will indicate that 2 x is zero, and thus the termxit can be taken out of the model, leaving a specification with parameters to be compatibly assessed by resorting to smallest normal differences. Checking for variance inflation factor vif and ensuring that it is less than 10 therefore, if vif 10, eliminate the variables in a stepwise way. However, i am struggling with the interpreting of the function itself into eviews. How can i calculate the translog cost function for cross. There is the arduous task of testing to see that your model satisfies certain assumptions of production functions. How to deal with multicollinearity in a translog production. For a firm with a single output production function, price elasticity is the percentage change in quantity demanded of an input with respect to a one percent change in the price of the input own price elasticity or of another input cross price elasticity. The translog production function is used because it does not imply a fixed elasticity of perfect substitution between the production factors nor the perfect functioning of the production factor.
On the estimation of production functions george e. The data are unbalanced panel data for the years 19721993 from two. In this sense, the translog function can represent a production function that is not homogeneous. Some aspects of the translog production function estimation 3 production function, which takes into account a number of n inputs production factors, can be exprssed as. Youn kim abstractthis paper examines existing methods of estimating the translog production function and provides a general received for publication december 15, 1989. Ces production function estimation economics stack exchange. I have attached a word document of my translog function and all the variables. The coef method returns a vector containing all linearly independent coef. Meller, the translog production function olsq and thus our. The best exponent of this work is franklin fisher, whose extensive work began in the mid 1960s and was compiled in fisher 1993.
The translog function doesnt impose additivity and homogeneity, and hence constant elasticity of substitution. Both the recent literature on production function identification and a considerable body of other empirical work on firm expansion assume a cobbdouglas production function. Translogs replay function is a powerful instrument for eliciting rich and accurate process information in retrospective interviews. Data and parameter estimates were previously stored in datasets est and klems in the example estimating a derived demand system from a translog cost function. As stated above, some empirical economists, seeking to estimate cobbdouglas or translog production functions, have confined their attention to only those farmers who have positive values of the key input or explanatory variables.
A production function pf is a description of a production technology that relates the physical output of a production process to the physical inputs or factors of production. In general, the translog form does not impose any a priori. Calculate dependent variable of a cobbdouglas function cobbdouglasderiv. The present article addresses these questions, using a translog micro production function framework and panel data for manufacturing plants. Thus, y is a function of k, l, and all possible interactions kl. We have taken the classical production function having two inputs, capital and labour. How to use excel to estimate the cobbdouglas production function duration. The unknown parameters are estimated by maximum likelihood, using the proc mixed procedure in the sasstat software, littell et al. The fact that on the basis of fairly wide studies there is an appreciable degree of uniformi. This relation expresses the fact that in the production function the cost of the two production factors labour force cost lw and capital cost ke are proportional to cobbdouglas function parameters.
If we can find sufficient number of points in the input space, where the restrictions are satisfied then the translog production function is. In economics and econometrics, the cobbdouglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs particularly physical capital and labor and the amount of output that can be produced by those inputs. In the context of time series estimates of an aggregate production function for the us manufacturing sector the same result was found by berndt and christensen 1973, tables 4, 6, 7, when estimating the translog function from side conditions for profit maximization. Optimal values of independent variables of a cobbdouglas. When derived demand systems are obtained from a cost function, it is possible to estimate several elasticities of substitution along with price elasticities. The cobbdouglas form was developed and tested against. What are the different methods for dealing with multicollinearity in a translog production function.
Get project updates, sponsored content from our select partners, and more. Production functions are a key part of modelling national output and national income. Generate cost data with the estimated translog production function, yielding a data set relating output, q, and factor prices, wl, wk, and wm, randomized about the base factor prices wl, wk, wm to the translog cost minimizing factor inputs, l, k, and m. Derivatives of a cobbdouglas function cobbdouglasopt. Dear all, i am relatively new to stata and would like to know how to estimate the parameters of a translog production function with stata. This free software was originally designed by transgendercare.
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