Department of economics, school of social sciences, university of crete, 74100, rethymno. The translog production function is an approximation of the ces function by a secondorder taylor polynomial about, i. View the article pdf and any associated supplements and figures for a period of 48 hours. Jan 17, 2019 the translog production function itself is a very flexible way of modelling the production process, which implies that to discipline its estimated coefficients, additional rigor has to be imposed by estimating it jointly with other equations. In particular, the cd function is the firstorder approximation of any unknown production function 50, and the translog production function is the secondorder approximation of any unknown. 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. The estimation is carried out using generalised least squares estimator randomeffects model under different maintained hypotheses for the underlying production technology. Remarkably, in most applications, these inputs are not used beyond subtracting them from the grossoutput number to get value added, so the approach. The idea is indeed to taylor expand the production function. Introduction in this chapter, we will take an in depth look at the problems involved in choosing functional forms for estimating systems of consumer and producer demand functions and producer supply functions. A new econometric approach to testing for economic growth convergence is overviewed. The coefficients of the translog production function vary with sigma and nu. This section outlines the general equilibrium translog model and derives the theoretical gravity equation based on an endowment economy framework.
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. 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. Pdf econometric estimation of production technologies. 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 majority of the analyses utilize a variant of the transcedental logarithmic translog cost function. The program will generate a set of 208 observations, and use ordinary least squares to estimate the translog coefficients. If all population relationships were linear, all regressions could take the form we have been studying. The introduction of the cobb douglas regression and its. 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. 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.
In this sense, the translog function can represent a production function that is not homogeneous. A cost function, such as the translog transcendental logarithmic production function, can be used to model how a firm combines inputs to produce outputs. We have taken the classical production function having two inputs. The cobbdouglas production function economics discussion. The stochastic frontier analysis sfa is an analytical approach that utilizes econometric. When derived demand systems are obtained from a cost function, it is possible to estimate several elasticities of. The translog cost function is frequently used in the banking literature, providing an estimation for the marginal cost of production for banks.
Before the chapter is over we will discuss ways of testing the relevance of this form for any particular situation. 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. Cost function approach for estimating derived demand for. Approximation properties and estimation of the translog. The zeroobservation problem in production function analyses has been addressed in a number of different ways. The translog production function and variable returns to scale. Production functions are a key part of modelling national output and national income. Christensenthe translog function and the substitution of equipment. This function has both linear and quadratic terms with the ability of using more than two factor inputs. I am not very familiar with its implications in consumer theory, but from the production point of view, ive seen it widely used. 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. Consequently, the shortcoming in the estimation of the respective production function is the occurrence of collinearity. For now we can say that this form was popularized several generations ago by the work of cobb and douglas, who argued that this loglog form fit production unction data better than the competitors. From a production function, we can derive the cost function, which describes the quantities of inputs needed, along with the cost, to produce a set level of output greene, 2008a.
Dec 30, 2018 in this video i introduce the translog production function,discuss its properties and estimation. An alternativetothecobbdouglasproduction function is the translog production function. To derive production function, we must know which technology the. We have taken the classical production function having two inputs, capital and labour.
Foreword this booklet is typed based on professor barry colys lecture notes for abiz 7940 production economics in winter 2008. Estimating production functions paulschrimpf ackerberg, caves,and frazer2015 collinearityinop acfestimator relationtodynamic panel empiricalexample gandhi, navarro,and rivers20 identi. Calculating elasticities from a translog cost function. The aim of this study is to predict the translog production function including energy consumption for turkey. Special production functions cobbdouglas, ces, ves. Start with the little devil known as a translog production function, which is quite general but has parameter restrictions that imply cobbdouglas. The results of the log linear production function or cobb douglas production function table 10. What are the different methods for dealing with multicollinearity in a translog production function. Estimation of technical efficiency in the translog. Translog production frontier and inefficiency effects model.
When derived demand systems are obtained from a cost function, it is possible to estimate several elasticities of substitution along with price elasticities. Production function, cement industry, time series, labour intensive, return to scale. A production function, such as the translog transcendental logarithmic production function, can be used to model how a firm combines inputs to produce outputs. The estimates for the mills showed firm level technical efficiency mean of 70. These assumptions are relaxed at the end of section 2. It is often used in econometrics for the fact that it is linear in the parameters. Cobbdouglas has long been popular among economists because it is easy to work with and can explain the substitution between health care inputs. On the estimation of production functions george e.
Of particular interest is the scale economy effect. In this video i introduce the translog production function,discuss its properties and estimation. Youn kim abstractthis paper examines existing methods of estimating the translog production function and provides a general received for publication december 15, 1989. Knowledge about production technologies and producer behavior is important for politicians, business organizations, government administrations, financial institutions, and other national and international organizations that desire to know how contemplated policies and market conditions can affect production, prices, income, and resource utilization in agriculture as well as in other industries. 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.
Essentially, given a dataset ive to figure which production function it represents. 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. This paper uses crosssection data from individual establishments to estimate directly, i. To the economists, a production function is something more. This function can be approximated by second order taylor series christensen, et al. The name translog stands for transcendental logarithmic. Edward rister functional form selection is a sometimes neglected aspect of applied research in production analysis. Canadian journal of agricultural economics revue canadienne dagroeconomie. This paper examines the selection of data source and econometric technique for studies of banking efficiency using translog cost functions. A cost function cq is a function of q, which tells us what the minimum cost. Introduction main objective of the study is to investigate the relationship put and between the production of cement and inputs labour and capital. Selecting functional form in production function analysis ronald c.
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. Two models are commonly used in the estimation of hospital production function. Some aspects of the translog production function estimation. 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. As bergin and feenstra 2000 note, the translog demand structure employed here is more concave than the ces. The best exponent of this work is franklin fisher, whose extensive work began in the mid 1960s and was compiled in fisher 1993. Recently there has been considerable progress in estimation techniques which take into account the fact that pro t maximizing rms. Pdf some aspects of the translog production function.
Chapter 9 flexible functional forms vancouver school of. It would be highly appreciated if software demo to estimate the same is given. The analytical method used is descriptive method and analysis of translog production functions with scenarios. Cobbdouglas production functions with three parameters, translog production function including also the time parameter etc. Selecting functional form in production function analysis. Estimation of cobdouglas and translog production functions with capital and gender disaggregated labor inputs in the usa, journal of smart economic growth, vol.
A multistage sampling method was used to select 30 mills in the study area and cost route approach used in data collection. Pdf in a translog production function, the number of parameters practically. Huffman hinged on the estimation of a production function, where extension had. Production and cost functions allan collardwexler january 2, 2012 1 introduction production functions are indispensable tools for empirical i. The translog function doesnt impose additivity and homogeneity, and hence constant elasticity of substitution. L is the rate at which production changes with respect to the amount of labor. Cobbdouglas production functions is a functional relationship between input and out put. For the analysis, it was utilized gdp, labor, capital, natural gas, oil and coal data. The empirical estimation of production and cost functions is a standard exercise in econometrics. Production functions 3 outputit is sometimesuseful to represent the technology of the. This paper provides a general theoretical and methodological framework for the estimation of the translog production function using panel data.
The cobbdouglas production function is based on the empirical study of the american manufacturing industry made by paul h. In a translog production function, the number of parameters practically explodes as the number of considered production factors increases. Meller, the tramlog production function constant and equal for. Pdf some aspects of the translog production function estimation. The method is applicable to panel data, involves a simple regression based onesided ttest, and can be used to. Introduction to econometric production analysis with r leanpub. The transcendental logarithmic cost function looks like. Production function estimation in stata using inputs to. 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. Cobbdouglas, translog stochastic production function and data. Special production functions cobb douglas, ces, ves, translog and their properties duration. The world is not flat things would be relatively simple if we could always presume that our first simplifying assumption in chapter five is true. 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. Special production functions cobbdouglas, ces, ves, translog and their properties bse duration.
In a translog production function, the number of parameters. Is econometrics the discipline that tries to answer the corresponding questions. 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. The translog function is an attractive flexible function. The translog production function some evidence from. A production function shows costs for using inputs and revenues for output sold. The threeinput translog production function can be written in terms of logarithms as. Calculating elasticities from a translog cost function overview elasticities of substitution are an important measure of production relationships. The translog function can be used not only in preferences but also in production and cost functions. The translog function is a second order approximation to an unknown cost function that imposes a minimal number of prior constraints.
This one studies the conditions under which neoclassical micro production functions can be aggregated into a neoclassical aggregate production function. Longrun cost function cost function let w be the cost per unit of labor and r be the cost per unit of capital. Can anyone help to estimate total cost under translog cost function. Estimating hospital production functions through flexible. The transcendental logarithmic cost function looks like the. In economics, a production function is an equation that describes the relationship between input and output, or what goes into making a certain product, and a cobbdouglas production function is a specific standard equation that is applied to describe how much output two or more inputs into a production process make, with capital and labor being the typical. The stochastic frontier analysis sfa is an analyti cal approach that utilizes econometric parametric techniques whose models of production recognize. This is a list of production functions that have been used in the economics literature. My question is about the results that i got after i did a regression on the translog production function for panel data. The threeinput translog production function can be written in terms of logarithms as follows.