Barnett, William A.: Technology Modeling: Curvature is Not Sufficient for Regularity
World Conference Econometric Society, 2000, Seattle

William A. Barnett, Washington University in St. Louis
Milka Kirova, Washington University in St. Louis
Meenakshi Pasupathy, City University of New York
Technology Modeling: Curvature is Not Sufficient for Regularity
Session: C-8-25  Monday 14 August 2000  by Barnett, William A.
Recently there has been a growing tendency to impose curvature, but not monotonicity, on specifications of technology. This approach was motivated by the observation that specifications for technology estimated without imposition of curvature or monotonicity often violate curvature at some data points, but rarely violate monotonicity. However, imposing curvature leaves only monotonicity to be violated to improve fit. We estimate the Euler equations for some state-of-the-art production models under risk and find that imposing curvature alone indeed does induce violations of monotonicity that otherwise would not have occurred. We believe that imposing curvature alone can have unfortunate consequences.


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