The translog function form is widely applied in empirical studies for it is regarded as the second order approximation to the unknown function. A popular alternative is the translog even if, in this case, it is not possible to retrieve the parameters of the production function from the cost function. To justify it, you can start with the constant elasticity of substitution function, which in the twofactor case can be written as. The analytical method used is descriptive method and analysis of translog production functions with scenarios. Estimating a derived demand system from a translog cost function. Using nonparametric methods in econometric production. The best exponent of this work is franklin fisher, whose extensive work began in the mid 1960s and was compiled in fisher 1993. In case that the results obtained in estimation are considered feasible, the. Stata module to create new variables for a translog. The translog function is an attractive flexible function. Can anyone help to estimate total cost under translog cost function. Shazam econometrics, statistics and analytics community.
Calculating elasticities from a translog cost function. Estimation of production functions aviv nevo, northwestern university winter 2009 1 introduction why do we care about estimating production functions in an io course. 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. The reference is greenes book on econometrics, which is in the reference section. The estimation is carried out using generalised least squares estimator randomeffects model under different maintained hypotheses for the underlying production technology. This paper examines the selection of data source and econometric technique for studies of banking efficiency using translog cost functions. Kautilya economics, commerce and finance 3,780 views 40. Estimation of technical efficiency in the translog stochastic. Estimating production functions paulschrimpf ackerberg, caves,and frazer2015 collinearityinop acfestimator relationtodynamic panel empiricalexample gandhi, navarro,and rivers20 identi. Feb 03, 2018 this video will deal with some timevarying and timeinvariant model of stochastic frontier analysis using stata. Production functions are components in many economic models. The translog function allows for estimation of parameters that embody all of the relations that are derivable from the general model of cost minimization subject to a output objective. Production functions are a key part of modelling national output and national income.
The translog function is a second order approximation to an unknown cost function that imposes a minimal number of prior constraints. Welcome to translog ii, a software designed to record user activity data in the process of translation, as well as reading, writing, copying and editing. The empirical estimation of production and cost functions is a standard exercise in econometrics. Consequently, the shortcoming in the estimation of the respective production function is the occurrence of collinearity. Of particular interest is the scale economy effect. When derived demand systems are obtained from a cost function, it is possible to estimate several elasticities. Theoretically, the collinearity impact is minimum if a single production factor is taken into account. For the regression with a translog function, it is need to create a combination of the fundmental variables. What are the different methods for dealing with multicollinearity in a translog production function.
Mar 18, 20 welcome to translog ii, a software designed to record user activity data in the process of translation, as well as reading, writing, copying and editing. The cobbdouglas production function is based on the empirical study of the american manufacturing industry made by paul h. Nonparametric test for translog specification of production function in japanese manufacturing industry. We have taken the classical production function having two inputs. 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. Imposing regional monotonicity on translog stochastic production frontiers with a simple threestep procedure article pdf available in journal of productivity analysis 323.
The resulting function is linear in parameters and standard statistical. When derived demand systems are obtained from a cost function, it is possible to estimate several elasticities of substitution along with price elasticities. In order to change the tradition of some modellers, we try to present estimates of substitution elasticity caused by these two production functions applied to the tunisian economy. Beginning with a series of pioneering work by cobb and douglas, estimation of productionfunction has been one of the main issues in empirical economics and econometrics in various aspects. The results of the log linear production function or cobb douglas production function table 10. Pdf some aspects of the translog production function estimation. Pdf estimate of the elasticities of substitution of the. 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 simplicity lets say only k is endogenous, and lets assume a good instrument is the number of firms in the market nfirm.
However, i am struggling with the interpreting of the function itself into eviews. I have attached a word document of my translog function and all the variables. The coefficients of the translog production function vary with sigma and nu. An alternativetothecobbdouglasproduction function is the translog production function. In this sense, the translog function can represent a production function that is not homogeneous. The transcendental logarithmic cost function looks like. Estimation of technical efficiency in the translog. Estimating hospital production functions through flexible. In this video i introduce the translog production function,discuss its properties and estimation. The threeinput translog production function can be written in terms of logarithms as. The program will generate a set of 208 observations, and use ordinary least squares to estimate the translog coefficients. The introduction of the cobb douglas regression and its adoption by agricultural economists jeff e. A production function, such as the translog transcendental logarithmic production function, can be used to model how a firm combines inputs to produce outputs.
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. Sasets web examples sas technical support sas support. The translog function can be used not only in preferences but also in production and cost functions. Elasticities of substitution are an important measure of production relationships.
The model proposed is certainly a simplified version of the complete econometric model specification some other variables, in fact, can affect the analyzed phenomenon. The estimates for the mills showed firm level technical efficiency mean of 70. Start with the little devil known as a translog production function, which is quite general but has parameter restrictions that imply cobbdouglas. It may not be apparent from the equation above, but the translog form nests the cobbdouglas form and is equivalent if all and are zero. Python script that generates all translog production. It provides many practical examples using the r statistical software. Calculating elasticities from a translog cost function overview elasticities of substitution are an important measure of production relationships. This section outlines the general equilibrium translog model and derives the theoretical gravity equation based on an endowment economy framework. To the economists, a production function is something more.
This one studies the conditions under which neoclassical micro production functions can be aggregated into a neoclassical aggregate production function. This paper provides a general theoretical and methodological framework for the estimation of the translog production function using panel data. The idea is indeed to taylor expand the production function. Im a beginner in r and im wondering how to interprete my results my question is about the results that i got after i did a regression on the translog production function for panel data. Estimation of cobdouglas and translog production functions with capital and gender disaggregated labor inputs in the usa, journal of smart economic growth, vol. Thus, y is a function of k, l, and all possible interactions kl, kk, ll. The cobbdouglas production function economics discussion. Nonparametric test for translog specification of production.
The function takes and as its inputs and returns minimum cost, where is a vector of prices for the inputs to production and is a single output. Some aspects of the translog production function estimation. Due to its properties, the translog production function can be used for the second order approximation of a linearhomogenous production, the. The observations are the ces functions costminimizing combinations of l, k, and m at the factor prices, wl, wk, wm for values of q from 15 to 40. I attach an article i coauthored using translog function on crosssection data. Pdf econometric estimation of production technologies. Python script that generates all translog production function. Structural estimation of a flexible translog gravity model shawnw. This function can be approximated by second order taylor series christensen, et al.
From a production function, we can derive the cost function, which describes the quantities of inputs needed, along with the cost, to produce. Iasupsc economics mainstranslog production function. How can i calculate the translog cost function for cross. The translog function allows for both positive and negative scale effects, that is, average cost can both decrease and increase across the range of the cost function. I am not very familiar with its implications in consumer theory, but from the production point of view, ive seen it widely used. Pdf on the basis of the ces and translog production functions, this study compares the degrees of capitallabour substitution of a developing country find, read and cite all the research. How can i calculate the translog cost function for cross section data. Translog cost function posted 04092009 660 views i am having a problem writing the code for a translog cost function does anyone have any references to share. It is a linear homogeneous production function of degree one which takes into account two inputs, labour and capital, for the entire output of the. Approximation properties and estimation of the translog.
A range of functional forms for the production function frontier are available, with the most frequently used being a translog function, which is a second order all crossterms included loglinear form. My question is about the results that i got after i did a regression on the translog production function for panel data. Ive created a python script that for a given number of production factors labour, capital etc. In a translog production function, the number of parameters practically explodes as the number of considered production factors increases.
As bergin and feenstra 2000 note, the translog demand structure employed here is more concave than the ces. A production function shows costs for using inputs and revenues for output sold. May i use the value of output of the different industrial groups as a dependent variable to deal with technical efficiency and technology gaps with stochastic mf analysis without aggregation problem. Introduction to econometric production analysis with r fourth draft version. On the basis of the ces and translog production functions, this study compares the degrees of capitallabour substitution of a developing country. Structural estimation of a flexible translog gravity model. Python script that generates all translog production function product variables xpost from r econometrics. The introduction of the cobb douglas regression and its. Imposing regional monotonicity on translog stochastic. The transcendental logarithmic cost function looks like the.
As the production function is given in the form of a table showing physical combinations of different inputs to obtain certain unit of output, it is not within the domain of economics. 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. Theworldbank december20 abstract arkolakis, costinot and rodriguezclare 2012 show that many. Foreword this booklet is typed based on professor barry colys lecture notes for abiz 7940 production economics in winter 2008. Special production functions cobb douglas, ces, ves, translog and their properties duration. The translog function doesnt impose additivity and homogeneity, and hence constant elasticity of substitution. Various tools for microeconomic analysis and microeconomic modelling, e. A multistage sampling method was used to select 30 mills in the study area and cost route approach used in data collection. How to deal with multicollinearity in a translog production. Estimating hospital production functions through flexible regression models. Production function an overview sciencedirect topics. Hi rstatistics ive created a python script that for a given number of production factors labour, capital etc.
The cobbdouglas form was developed and tested against. An alternative to the cobbdouglas production function is the translog production function. Some advance model of the inefficiency effects model of battese and coelli 1995. Using translog production function, this paper calculates the elasticity of substitution between hydroelectricity, coal, gas.
It would be highly appreciated if software demo to. Fitting production functions in stata i want to learn how to find the functional form of a production function that will fit my data well. Estimation of the spf requires a particular functional form of the production function to be imposed. Is econometrics the discipline that tries to answer the corresponding questions. This function has both linear and quadratic terms with the ability of using more than two factor inputs.
This is a list of production functions that have been used in the economics literature. Chapter 1 has described two broad paradigms for measuring economic efficiency, one based on an essentially nonparametric, programming approach to analysis of observed outcomes, and one based on an econometric approach to estimation of theory based models of production. The majority of the analyses utilize a variant of the transcedental logarithmic translog cost function. Python script that generates all translog production function product variables xpost from r econometrics software. The conclusions of the cambridge debates and the aggregation literature are so damaging for the notion of an aggregate production function that one wonders why it continues being used. Estimating a derived demand system from a translog. Essentially, given a dataset ive to figure which production function. Special production functions cobbdouglas, ces, ves, translog and their properties bse duration.
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