However, i am struggling with the interpreting of the function itself into eviews. The next obvious step is to generate a function which allows. This allows to extend knowledge on the supply side and to examine if strategies of integrators are consistent with cost structure. As an illustration of the process of estimating a system of equations in eviews, we estimate a translog cost function using data from berndt and. Structural estimation of a flexible translog gravity model.
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. Marginal costs of translog production function in micecon. For the regression with a translog function, it is need to create a combination of the fundmental variables. 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. A translog cost estimation of capitallabour substitubility in malaysian manufacturing sector maisom abdullah h. Derivatives of a cobbdouglas function cobbdouglasopt. We investigate the behavior of three versions of the translog cost function. 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. The translog production function and variable returns to scale. In general, the translog form does not impose any a priori. A translog cost function of the integrated air freight. Taher bayero uniuersity, kano, nigeria received 27 august 1984 if the production technology is nonhomothetic, efficient estimation of the translog approximation requires joint estimation of the cost and. In this context, di, dx andfrs fr for all i,j,s, and r.
Pdf some aspects of the translog production function estimation. Translog cost function 901 notes 22 department of economics. Purdue university, north carolina state university 14 march 2009 online at mpra paper no. Hi, i am trying to use a translog cost function using sur to compute elasticities and total factor productivity. How to deal with multicollinearity in a translog production. The transcendental logarithmic cost function looks like the. Ij 1 j 2 iy j where i, j k, l and in c is the lgarithm of total cost, in pi is the logarithm of the ith input price, and in yi is the logarithm of output. Treating crops and livestock as two distinct outputs, this study utilizes standard results of neoclassical duality theory to. How can i calculate the translog cost function for cross section data. A translog cost estimation of capitallabour substitubility. This is a generalization of cobbdouglas cost function.
The ces was a natural extension of the cobbdouglas in that it permitted the elasticity of substitution to be something other than unity. Optimal values of independent variables of a cobbdouglas. Dear all, i would like to estimate a translog cost function with two inputs price of labour and price of physical capital, one single output total assets and a time trend. Basic regression analysis an equation formula in eviews is a mathematical.
In the translog function 1, this requires that sbr 1, f,s 0 r 1,2. Structural estimation of a flexible translog gravity model shawnw. A generalised example of a translog production function, where y is the output produced, and x n is the quantity of input n used in the production process, takes the form. View translog cost function research papers on academia. Stata module to create new variables for a translog. Estimation of the demand function of water for the industrial sector. 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. If the production function is cobbdouglas and constant returns to scale. Calculate dependent variable of a cobbdouglas function cobbdouglasderiv. It also suggests how the main results extend to any functional form with certain properties. Hi everyone, i need to estimate the following translog production function. The translog production function is an approximation of the ces function by a secondorder taylor polynomial about, i. The translog function christensen, jorgenson, and lau, 1973 has become an integral tool for analyzing the production structure of many firms and industries. 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.
We examine the use of seemingly unrelated regression estimation for a cost function, as against estimation using ordinary least squares. Data on french apple producers in 1986 bleymueller79e25. Thus, y is a function of k, l, and all possible interactions kl, kk, ll. 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 translog function doesnt impose additivity and homogeneity, and hence constant elasticity of substitution. The empirical estimation of production and cost functions is a standard exercise in econometrics.
Calculate dependent variable of a cobbdouglas function. A comparison of purchasing power parity between the pound sterling and the australian dollar 1979. The estimated coefficients of the translog cost function may be used to construct estimates of the elasticity of substitution between factors of production. Before logarithms are taken, the function is c da0y a y y 1 2 ayy lny yn. Estimating a derived demand system from a translog cost function. Ray the translog cost function provides a convenient framework for analyzing u. Taher bayero uniuersity, kano, nigeria received 27 august 1984 if the production technology is nonhomothetic, efficient estimation of the translog approximation. A translog cost function analysis with implications for economic development patrick mccarthy school of economics georgia institute of technology final report submitted to georgia department of transportation georgia transportation instituteuniversity transportation center december 2011. I was estimating technical efficiency of tomato producing farms with translog production function. The translog cost function can be estimated in a number of ways. Thus, y is a function of k, l, and all possible interactions kl. Estimating the translog cost function with insufficient. Estimating a derived demand system from a translog cost.
The estimated coefficients of the translog production and cost functions will vary with the parameters sigma, nu, alpha, beta and gamma of the ces production function. Moreover, only the cost shares in the system were estimated, that is, the total cost function was not included. Technology can be represented by a production function, such as cobbdouglas and constant elasticity of substitution ces place a restriction on elasticity of substitution cobb and douglas 1928, arrow, et al. Estimating translog cost function for technical questions regarding estimation of single equations, systems, vars, factor analysis and state space models in eviews. The cost function is based on quarterly timeseries data from 1990 to 2010 for fedex and ups. Theworldbank december20 abstract arkolakis, costinot and rodriguezclare 2012 show that many. Usage translogcostest cname, yname, pnames, data, fnames null, shifternames null, datalogged false, homprice true, arguments cname.
On the estimation of production functions george e. Pdf eviews 7 users guide ii nesrin eskiocak zubaroglu. The purpose of the translog cost function is to identify a specific functional form for a cost function that embodies all of the assumptions and results of our cost minimization model. Because the translog production function is much more general it has a flexible functional form permitting the partial elasticities of substitution between inputs to vary, i will use numerical analysis to obtain the cost functions associated with a given translog production function. The transcendental logarithmic cost function looks like. Hey all, im estimating my translog cost function, with panel data for 33 different countries, 10 years on individual bank data. The translog function is conceptually simple and imposes no a priori restrictions on elasticities of substitution and returns to scale. Sep 28, 2015 what are the different methods for dealing with multicollinearity in a translog production function. This paper examines the selection of data source and econometric technique for studies of banking efficiency using translog cost functions. I am not very familiar with its implications in consumer theory, but from the production point of view, ive seen it widely used. I structurally estimate the parameters and conduct.
Substitute the values of these parameters into the translog cost function, and estimate its remaining three parameters, c, cq, and dqq, using linear multiple regression. These include the method of the translog cost function that have been proposed by christensen et al. I use the xtfrontier command, but dont know if its right. General econometric questions and advice should go in the econometric discussions forum. A new system of logchange index numbers for multilateral comparisons. The translog function form is widely applied in empirical studies for it is regarded as the second order approximation to the unknown function. Before logarithms are taken, the function is c da0y a y y 1 2 ayy lny yn id1 w i i n id1 waiy lny i.
Any sensible cost function must be homogenous of degree 1 in input prices. C mathematical and quantitative methods c5 econometric modeling c51 model construction and estimation. Osmanrani abstrak tujuan utama kajian ini ialah untuk mengemukakan bukti empirik tambahan tentang keanjalan penggantian antara modal dan buruh bagi industri pembuatan di malaysia pada peringkat 5digit dengan. Mar 20, 2018 translog cost function 20 mar 2018, 15. The translog cost function is frequently used in the banking literature, providing an estimation for the marginal cost of production for banks. In a translog production function, the number of parameters practically explodes as the number of considered production factors increases.
What are the different methods for dealing with multicollinearity in a translog production function. The only parameter of the cost function that is not captured by the derived demand system is the intercept term which is not used in calculating price or substitution elasticities. Consequently, the shortcoming in the estimation of the respective production function is the occurrence of collinearity. The name translog stands for transcendental logarithmic. To this end, the translog cost function which is considered as a more robust framework. Their performances are assessed according to three criteria. The almost ideal and translog demand systems holt, matthew t. The importance of a specific functional form is that it can be used in empirical work. This paper analyzes the cost structure of the integrated air freight business by means of a translog cost function. The translog function can be used not only in preferences but also in production and cost functions. One benefit of the translog form is that the system of factor demands gives nearly the same information as the cost function. Some aspects of the translog production function estimation. I have attached a word document of my translog function and all the variables. How can i calculate the translog cost function for cross.
Translog cost function overview the transcendental logarithmic translog functional form can capture many of the attributes of a cost function that are implied by economic theory. 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. Transcendental logarithmic cost function1 the purpose of the translog cost function is to identify a specific functional form for a cost function that embodies all of the assumptions and results of our cost minimization model. This translog dual cost function can be regarded as a quadratic approximation to the unspecified true cost function. The tcf needs to be specified for every country seperately and i include year and specialization dummies 4 types banks.
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