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. The empirical estimation of production and cost functions is a standard exercise in econometrics. 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. On the estimation of production functions george e. Estimation of a ces production function with factor augmenting technology should be of use here. The translog function form is widely applied in empirical studies for it is regarded as the second order approximation to the unknown function. What are the different methods for dealing with multicollinearity in a translog production function. Calculating elasticities from a translog cost function. 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. Devesh raval november 15, 2010 abstract both the recent literature on production function identi. I have attached a word document of my translog function and all the variables. For the regression with a translog function, it is need to create a combination of the fundmental variables.
Stata module to create new variables for a translog. This function can be approximated by second order taylor series christensen, et al. The unknown parameters are estimated by maximum likelihood, using the proc mixed procedure in the sasstat software, littell et al. Its properties, its several interpretations and estimation problems a. I am not very familiar with its implications in consumer theory, but from the production point of view, ive seen it widely used. Fisher concluded that the conditions for successful aggregation of micro production functions into an aggregate production function with neoclassical properties are so. 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. 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. 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. The vcovmethod returns the covariance matrix of all linearly independent coef. In this sense, the translog function can represent a production function that is not homogeneous.
Thus, y is a function of k, l, and all possible interactions kl. 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. The translog production function and variable returns to scale. The translog function doesnt impose additivity and homogeneity, and hence constant elasticity of substitution. The next obvious step is to generate a function which allows.
The best exponent of this work is franklin fisher, whose extensive work began in the mid 1960s and was compiled in fisher 1993. When derived demand systems are obtained from a cost function, it is possible to estimate several elasticities of substitution along with price elasticities. Treating crops and livestock as two distinct outputs, this study utilizes standard results of. Hi everyone, i need to estimate the following translog production function. This function has both linear and quadratic terms with the ability of using more than two factor inputs. 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. Ray the translog cost function provides a convenient framework for analyzing u.
The cobbdouglas production function is still today the most ubiquitous form in theoretical and empirical analyses of growth and productivity. They maximize production, minimize cost, and maximize profits. If optimized cost rises slower than output, the scale effect is positive implying a declining average cost function. 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. The estimation of the parameters of aggregate production functions is central to much of todays work on growth, technological change, productivity, and labor.
Translogii user is used to run a text production experiments a user reads, writes or translates a text. Calculate dependent variable of a cobbdouglas function cobbdouglasderiv. Calculating elasticities from a translog cost function overview elasticities of substitution are an important measure of production relationships. Generate ces data and estimate the parameters of a translog production function. 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. Optimal values of independent variables of a cobbdouglas. Derivatives of a cobbdouglas function cobbdouglasopt. The transcendental logarithmic cost function looks like. The present article addresses these questions, using a translog micro production function framework and panel data for manufacturing plants.
There is the arduous task of testing to see that your model satisfies certain assumptions of production functions. 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. 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 translog function is an attractive flexible function.
The ces was a natural extension of the cobbdouglas in that it permitted the elasticity of substitution to be something other than unity. Structural estimation of a flexible translog gravity model. As we have, for cobbdouglas production function, l f l f and k f k f, the optimum necessary condition becomes lw ke. If we can find sufficient number of points in the input space, where the restrictions are satisfied then the translog production function is. Translogs replay function is a powerful instrument for eliciting rich and accurate process information in retrospective interviews. This free software was originally designed by transgendercare. The translog production function is an approximation of the ces function by a secondorder taylor polynomial about, i. Translog ii user is used to run a text production experiments a user reads, writes or translates a text. The cobbdouglas form was developed and tested against.
Estimation of cobdouglas and translog production functions with capital and gender disaggregated labor inputs in the usa, journal of smart economic growth, vol. This allowed douglas to argue that the findings provided strong support for marginal productivity theory the laws of production. Thus, y is a function of k, l, and all possible interactions kl, kk, ll. Sep 28, 2015 what are the different methods for dealing with multicollinearity in a translog production function. How to use excel to estimate the cobbdouglas production function duration. Pdf some aspects of the translog production function estimation. The data are unbalanced panel data for the years 19721993 from two. In general, the translog form does not impose any a priori. We have taken the classical production function having two inputs, capital and labour. 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. Cobbdouglas production functions is a functional relationship between input and out put.
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. 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 various ways of controlling text display makes it possible to know accurately what a subjects attention is focussed on at any. Get project updates, sponsored content from our select partners, and more. However, i am struggling with the interpreting of the function itself into eviews. My question is about the results that i got after i did a regression on the translog production function for panel data. The name translog stands for transcendental logarithmic.
Production function with factor augmenting technology. Data on french apple producers in 1986 bleymueller79e25. The coef method returns a vector containing all linearly independent coef. The zeroobservation problem in production function analyses has been addressed in a number of different ways. Translog ii 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. 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. Douglas production function were very similar to the expected factor shares. A standard expression is to write scale effects as 1lncq.
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. Both the recent literature on production function identification and a considerable body of other empirical work on firm expansion assume a. 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. We illustrate these practical issues associated with applying each model through empirical examples using a set of quarterly u. To our knowledge, this is the first study exploring aggregation issues with panel data by means of this functional form.
An alternativetothecobbdouglasproduction function is the translog production function. 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. The fact that on the basis of fairly wide studies there is an appreciable degree of uniformi. However, the translog production function is not globally well behaved as it does not satisfy the above two conditions at all points in the input space.
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. Ces production function estimation economics stack exchange. Youn kim abstractthis paper examines existing methods of estimating the translog production function and provides a general received for publication december 15, 1989. Meller, the translog production function olsq and thus our. Ces production function 5 10 15 20 x1 5 10 15 20 x2 0 25 50 75 100 fhx1,x2l figure 7. 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. 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. Both the recent literature on production function identification and a considerable body of other empirical work on firm expansion assume a cobbdouglas production function. Some aspects of the translog production function estimation. Translog the leading tool for analysing text production. A production function, such as the translog transcendental logarithmic production function, can be used to model how a firm combines inputs to produce outputs.
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