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Fitting of Cobb-Douglas Production Functions: Revisited

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  • Prajneshu

Abstract

The set of Cobb-Douglas production functions is usually fitted by first linearizing the models through logarithmic transformation and then applying method of least squares. However, this procedure is valid only when the underlying assumption of multiplicative error-terms is justified. Unfortunately, this assumption is rarely satisfied in practice and accordingly, the results obtained are of doubtful nature. Further, nonlinear estimation procedures generally yield parameter estimates exhibiting extremely high correlations, implying thereby that the parameters are not estimated independently. In this paper, use of expected-value parameters has been highlighted and the advantages of their use have also been discussed. Finally, the developed methodology has been illustrated by applying it to the wheat yield time-series data of Punjab.

Suggested Citation

  • Prajneshu, 2008. "Fitting of Cobb-Douglas Production Functions: Revisited," Agricultural Economics Research Review, Agricultural Economics Research Association (India), vol. 21(2).
    • Handle: RePEc:ags:aerrae:47684
    DOI: 10.22004/ag.econ.47684
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    1. Gwavuya, S.G. & Abele, S. & Barfuss, I. & Zeller, M. & Müller, J., 2012. "Household energy economics in rural Ethiopia: A cost-benefit analysis of biogas energy," Renewable Energy, Elsevier, vol. 48(C), pages 202-209.
    2. Roman G. Smirnov & Kunpeng Wang, 2019. "The Cobb-Douglas production function revisited," Papers 1910.06739, arXiv.org, revised Oct 2019.
    3. Wei, Lai & Luo, Yun & Wang, Miao & Su, Shiliang & Pi, Jianhua & Li, Guie, 2020. "Essential fragmentation metrics for agricultural policies: Linking landscape pattern, ecosystem service and land use management in urbanizing China," Agricultural Systems, Elsevier, vol. 182(C).
    4. Hussain, Anwar Hussain, 2012. "Impact of Credit Disbursement, Area under Cultivation, Fertilizer Consumption and Water Availability on Rice Production in Pakistan (1988-2010)," MPRA Paper 41963, University Library of Munich, Germany.

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