The zeroobservation problem in production function analyses has been addressed in a number of different ways. Calculating elasticities from a translog cost function. We have taken the classical production function having two inputs, capital and labour. Some aspects of the translog production function estimation. Its properties, its several interpretations and estimation problems a. The data i have is a balanced panel dataset across 9 years with 21 hospitals. We illustrate these practical issues associated with applying each model through empirical examples using a set of quarterly u. The threeinput translog production function can be written in terms of logarithms as.
Ray the translog cost function provides a convenient framework for analyzing u. Production functions are a key part of modelling national output and national income. Make as much fun of me as you want but please help me out too. 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. Using translog production function, this paper calculates the elasticity of substitution between hydroelectricity, coal, gas. Calculating elasticities from a translog cost function overview elasticities of substitution are an important measure of production relationships.
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. The translog production function is an approximation of the ces function by a secondorder taylor polynomial about, i. I am not very familiar with its implications in consumer theory, but from the production point of view, ive seen it widely used. In this sense, the translog function can represent a production function that is not homogeneous. For simplicity lets say only k is endogenous, and lets assume a good instrument is the number of firms in the market nfirm.
The translog production function and variable returns to scale. I have another video that uses a cobbdouglas production. 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. Both the recent literature on production function identification and a considerable body of other empirical work on firm expansion assume a cobbdouglas production function. This function can be approximated by second order taylor series christensen, et al. O northholland publishing company the translog function and the substitution of equipment, structures, and labor in u. Translog production function stata economics job market. I have attached a word document of my translog function and all the variables. A multistage sampling method was used to select 30 mills in the study area and cost route approach used in data collection. On the estimation of production functions george e. 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. Of particular interest is the scale economy effect. An alternativetothecobbdouglasproduction function is the translog production function. 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.
Cobb douglas production function and the marginal rate of technical. 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. When derived demand systems are obtained from a cost function, it is possible to estimate several elasticities of substitution along with price elasticities. Estimation of a ces production function with factor augmenting technology should be of use here. Treating crops and livestock as two distinct outputs, this study utilizes standard results of neoclassical duality theory to.
Thus, y is a function of k, l, and all possible interactions kl, kk, ll. Hi, if anyone know from where i can get stata code to implement a translog production function then please let me know. The transcendental logarithmic cost function looks like. How to use excel to estimate the cobbdouglas production function. This video shows how to calculate the elasticity of substitution from a constant elasticity of substitution production function ces. In general, the translog form does not impose any a priori. I am in a very tight situation so i will be very very highly thankful. From a production function, we can derive the cost function, which describes the quantities of inputs needed, along with the cost, to produce. 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. This is a list of production functions that have been used in the economics literature. The fact that on the basis of fairly wide studies there is an appreciable degree of uniformi. What are the different methods for dealing with multicollinearity in a translog production function. The translog function doesnt impose additivity and homogeneity, and hence constant elasticity of substitution. Seemingly unrelated regressions sur 1 examples demand for some commodities.
Various tools for microeconomic analysis and microeconomic modelling, e. How can i calculate the translog cost function for cross section data. A production function, such as the translog transcendental logarithmic production function, can be used to model how a firm combines inputs to produce outputs. I have been estimating several sfa production functions using spaniel, mostly with success i think but have run into an issue when i attempted to estimate two using the kumbhakar 1990 model option. The ces was a natural extension of the cobbdouglas in that it permitted the elasticity of substitution to be something other than unity. For the regression with a translog function, it is need to create a combination of the fundmental variables. 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 estimation of the cobbdouglas function 431 an important question because douglas was convinced that the coincidence of the. Due to its properties, the translog production function can be used for. Meller, the translog production function olsq and thus our. Checking for variance inflation factor vif and ensuring that it is less than 10 therefore, if.
Cobbdouglas production functions is a functional relationship between input and out put. 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. 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 empirical estimation of production and cost functions is a standard exercise in econometrics. Special production functions cobbdouglas, ces, ves, translog and their properties bse. How to use excel to estimate the cobbdouglas production. A cost function, such as the translog transcendental logarithmic production function, can be used to model how a firm combines inputs to produce outputs. 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. 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.
How can i calculate the translog cost function for cross. If we can find sufficient number of points in the input space, where the restrictions are satisfied then the translog production function is considered as well behaved. The estimates for the mills showed firm level technical efficiency mean of 70. Douglas production function were very similar to the expected factor shares. The translog function is an attractive flexible function. However, i am struggling with the interpreting of the function itself into eviews. Youn kim abstractthis paper examines existing methods of estimating the translog production function and provides a general received for publication december 15, 1989.
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