| 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. |