Nonparametric Models of Technology

Abstract

Parametric forms for the production function are sufficiently differentiable, which facilitates analysis of technology via calculus. Sometimes, however, a parametric form exhibits a property that can be refuted by the data. For example, the CES function has constant elasticity of substitution and constant returns-to-scale regardless of the estimated parameters a, b and ρ (hence the appellation). As another example, the Cobb-Douglas function exhibits multiplicative separability of the input factors. The translog function has the fewest restrictions, which has made it a desirable and often used functional form.