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When Flexible Forms Are Asked To Flex Too Much

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  • Driscoll, Paul J.

Abstract

Taylor series-based flexible forms cannot be interpreted as Taylor series approximations unless all data used in estimation lie in a region of convergence. When flexible forms lose their Taylor series interpretation, elasticity estimates will be biased. When the flexible form is a translog, Rotterdam, or AIDS model, the region of convergence is shown to be the entire positive orthant. Regions of convergence associated with quadratic, Leontief, and any flexible form that does not employ logged arguments are smaller and may not encompass the entire data set. Implications for production and demand analyses and experimental design are discussed.

Suggested Citation

  • Driscoll, Paul J., 1994. "When Flexible Forms Are Asked To Flex Too Much," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 19(1), pages 1-14, July.
    • Handle: RePEc:ags:jlaare:31226
    DOI: 10.22004/ag.econ.31226
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    References listed on IDEAS

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    1. Chalfant, James A. & Gallant, A. Ronald, 1985. "Estimating substitution elasticities with the Fourier cost function : Some Monte Carlo results," Journal of Econometrics, Elsevier, vol. 28(2), pages 205-222, May.
    2. Byron, Ray P & Bera, Anil K, 1983. "Least Squares Approximations to Unknown Regression Functions: A Comment," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 24(1), pages 255-260, February.
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    Cited by:

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    2. Sam Jones, 2020. "Testing the Technology of Human Capital Production: A General‐to‐Restricted Framework," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(6), pages 1429-1455, December.

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