The translog cost function will be used as an approximation to the multiple output cost function that we wish to estimate. View translog cost function research papers on academia. Recently there has been considerable progress in estimation techniques which take into account the fact that pro t maximizing rms. This paper can be considered as a first attempt to estimate the threeinput translog production function for four digits seventy seven jordanian manufacturing industries in 2002. Abstract this study measures cost efficiencies of 18 chinese commercial banks, divided into the stateowned banks and the jointstock banks, by the translog cost function based on stochastic frontier analysis sfa, and proves that translog cost function is more suitable in this study than cobbdouglas cost function.
Time invariant cost efficiency estimation method ml. A translog cost function of the integrated air freight. 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. This paper analyzes the cost structure of the integrated air freight business by means of a translog cost function.
Moreover, only the cost shares in the system were estimated, that is, the total cost function was not included. Subfleet translog total cost regression vs restricted model 34 table 11. We next estimate the translog cost function without curvature restrictions imposed. Pdf problems involved with translog cost function and some. An alternativetothecobbdouglasproduction function is the translog production function. Pdf the paper attempts to find out some specific problems in connection with the specification, estimation and evaluation of the translog cost. Input shares s i are obtained by applying shephards lemma 2. The function takes w and y as its inputs and returns minimum cost, where w is a vector of prices for the inputs to production and y is a single output. A translog cost estimation of capitallabour substitubility.
As an alternative to panel data methods based on production function estimation, one can use duality theory to derive the cost function as well as the. Special production functions cobb douglas, ces, ves, translog and their properties duration. In particular, we want a cost function that allows for ushaped average cost. In the present unit, we will discuss different approaches to examination of production and cost functions, analysis of some empirical estimates of thesefunctions, and managerial uses of the estimated functions. However, subsequent studies, including the present paper, nd that the translog function is a misspeci cation of bank cost relationships and therefore can lead. Production function estimation in stata using inputs to. Thus the general form for the translog cost function with n inputs is as follows. C the cost function allows a relatively straightforward calculation of. The transcendental logarithmic cost function looks like. These assumptions are relaxed at the end of section 2. Pdf some aspects of the translog production function. A translog cost function for urban bus transit jstor.
The name translog stands for transcendental logarithmic. A functional form has to be postulated in the speci. Cobbdouglas cost function system cost function is a function of output and input prices. Translog preferences and trade costs this section outlines the general equilibrium translog model and derives the theoretical gravity equation based on an endowment economy framework. Production functions are a key part of modelling national output and national income. Deriving a production function from cost function using sheppards lemma. Multiproduct cost functions and scale economies in banking multiproduct cost functions and scale economies in banking cebenoyan, a.
However, pavelescu 2011 suggested that the translog production function can be used in a variety of alternatives, such as translog function linear, nonlinear translog functions, quadratic. Cost and production functions princeton new jersey. In addition, the contributions of fixed cost and cost complementarities to scope economies are shown for the composite form. Caves, christensen, and swanson 1981 develop and estimate multiproduct variable or short run cost functions on a pooled cross section of railroad firms in the united states for 1955. This is a list of production functions that have been used in the economics literature. The estimation of a cost function cw, y requires observations on costs, outputs y and input prices w of. In particular, we want a cost function that allows for ushaped. 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. The normalized quadratic functional form is our preferred functional form, because convexity or concavity restrictions can. In the general form, the translog function is given by. The importance of a specific functional form is that it can be used in empirical work. The empirical estimation of production and cost functions is a standard exercise in econometrics. Purdue university, north carolina state university 14 march 2009 online at mpra paper no.
Due to its properties, the translog production function can be used for the second order approximation of a linearhomogenous production, the. The translog production function is an approximation of the ces function by a secondorder taylor polynomial about, i. The aspects of the firms behavior that we observe are total cost, the allocation of total cost across. A note on allenuzawa partial elasticities of substitution. The stability of these results is assessed and illustrated for a number of different output aggregations. The next obvious step is to generate a function which allows. Frontier cost functions and bank efficiency sciencedirect. Econometric estimation of the constant elasticity of. This function has both linear and quadratic terms with the ability of using more than two factor inputs. 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. Linear homogeneity of the cost function, symmetry of the secondorder derivatives, and.
It also suggests how the main results extend to any functional form with certain properties. With the input labor l and capital k, the production cost is w. Abstract the translog cost function approach is employed to characterize the production structure and to estimate the rate of technical change and technical bias in the saw and planing mills industry spm in the new brunswick province. The remaining of the paper is organised as follows. The transcendental logarithmic translog christensen et al. Dec 17, 2015 special production functions cobbdouglas, ces, ves, translog and their properties bse. In this video i introduce the translog production function,discuss its properties and estimation. Translog cost function translog flexible transcendental logarithmic function provides a secondorder numerical approximation to almost any underlying cost function at a given point multiple outputs. The cost function is based on quarterly timeseries data from 1990 to 2010 for fedex and ups. A cost function cq is a function of q, which tells us what the minimum cost. The translog function can be used not only in preferences but also in production and cost functions.
Pdf a translog cost function analysis of us agriculture. Imposing curvature restrictions on a translog cost. C the cost function more easily handles a multiproduct firm than the alternative of directly estimating the technology via a production function. 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. Letting w denote the price of input i and y denote the output j. Cost functions are derived from a cost minimization process any decline in costs from an increase in one of the function s arguments would. Cost efficiency, translog cost function, chinese commercial banks. Production and cost functions allan collardwexler january 2, 2012 1 introduction production functions are indispensable tools for empirical i.
This function can be approximated by second order taylor series christensen, et al. The translog cost function can be estimated in a number of ways. The case of the translog cost function this note provides a useful property of the allenuzawa partials for the translog cost function. However, as the ces functional form is mostly used to model. The multioutput translog production cost function scholar commons. We compare the results of estimation when using a seemingly unrelated regression sur model of the cost function plus the cost share equations, versus estimating the cost function alone. The transcendental logarithmic cost function looks like the. In this study we use the translog cost function, which is a flexible. The analytical method used is descriptive method and analysis of translog production functions with scenarios. Modeling allocative inefficiency in a translog cost function.
In the dynamic tran slog specification, differencing the. This is a generalization of cobbdouglas cost function. Pdf in a translog production function, the number of parameters practically explodes as the number of considered production factors increases find, read. The translog cost function is commonly estimated with its cost minimizing input share equations in a seemingly unrelated equations sure regression zellner, 1962 and using maximum likelihood estimators.
Remarkably, in most applications, these inputs are not used beyond subtracting them from the grossoutput number to get value added, so the approach comes at no additional cost in data or computation. Some aspects of the translog production function estimation. Subfleet translog style total cost regression, 20002007 27 table 10. 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. Estimating a derived demand system from a 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. Calculating elasticities from a translog cost function.
This fact, and the additional fact that the estimating equations that result from applying the translog functional form are linear in. Munich personal repec archive the almost ideal and translog demand systems holt, matthew t. 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. This paper uses a translog cost function and establishes an exact relationship between allocative inefficiency in the cost share equations and in the cost function. The translog cost function provides a convenient framework for analyzing u. If the production function is cobbdouglas and constant returns to scale. Estimating a derived demand system from a translog cost function. In addition, we estimate partial elasticity of substitution, and own and cross price elasticities of factor inputs. Working paper series federal reserve bank of richmond. Extension of the traditional translog functional forms by the addition of trigonometric terms is reported to be especially. Treating crops and livestock as two distinct outputs, this study utilizes standard results of neoclassical duality theory to obtain measures of pairwise elasticities of substitution between inputs, price elasticities of factor.
The translog cost function the translog function with two inputs input shares easy to compute. Estimating a derived demand system from a translog cost. Dec 30, 2018 in this video i introduce the translog production function,discuss its properties and estimation. I am not very familiar with its implications in consumer theory, but from the production point of view, ive seen it widely used. Abstract the translog cost function approach is employed to characterize the production structure and to estimate the rate of technical change and technical bias in the saw and. The translog specification of the dual cost function was initially justified as a second order taylorseries approximation to an unknown dual cost function berndt and christensen, 1973. Special production functions cobbdouglas, ces, ves.
Recent criticism of the incorrect specification of homogeneity restrictions on the translog cost functions. The threeinput translog production function can be written in terms of logarithms as. Imposing curvature restrictions on a translog cost function. Working with data from weill 20, we estimate a translog for european banking covering twenty countries and nine years. A translog cost function analysis of us agriculture. The ces was a natural extension of the cobbdouglas in that it permitted the elasticity of substitution to be something other than unity. Chapter 9 flexible functional forms vancouver school of.
The translog function is a second order approximation to an unknown cost function that imposes a minimal number of prior constraints on the specification of the underlying technology. 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. Technological innovation in tobacco industry in the united. Calculating elasticities from a translog cost function overview elasticities of substitution are an important measure of production relationships. Treating crops and livestock as two distinct outputs, this study utilizes standard results of neoclassical duality theory to obtain measures of pairwise elasticities of substitution between inputs, price elasticities of factor demands, and the rate of hicks. Special production functions cobbdouglas, ces, ves, translog and their properties bse. The translog function is an attractive flexible function. 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. Longrun cost function cost function let w be the cost per unit of labor and r be the cost per unit of capital. Estimation of the model maximum likelihood estimation ml. The translog cost function is frequently used in the banking literature, providing an estimation for the marginal cost of production for banks. This allows to extend knowledge on the supply side and to examine if strategies of integrators are consistent with cost structure.
1213 1532 99 1256 1512 964 139 765 55 457 157 676 202 1533 668 1236 567 284 760 877 565 998 679 562 1160 637 100 1435 1275 514 1254 495