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A graphical approach to select the nested structure of a CES function

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  • Elena Lagomarsino

    (Università di Genova)

Abstract

The existing literature estimating nested CES production functions has so far neglected to provide a convincing method to discriminate among alternative nested structures. This study proposes a new approach to evaluate empirically which nested structure describes the production technology more closely. It is based on the estimation of translog point elasticities and on the graphical analysis of their distribution. A Monte Carlo simulation framework is used to demonstrate the applicability of the method given alternative parametrizations.

Suggested Citation

  • Elena Lagomarsino, 2020. "A graphical approach to select the nested structure of a CES function," Economics Bulletin, AccessEcon, vol. 40(4), pages 2887-2893.
    • Handle: RePEc:ebl:ecbull:eb-20-00861
    as

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    References listed on IDEAS

    as
    1. K. Sato, 1967. "A Two-Level Constant-Elasticity-of-Substitution Production Function," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(2), pages 201-218.
    2. Lagomarsino, Elena, 2020. "Estimating elasticities of substitution with nested CES production functions: Where do we stand?," Energy Economics, Elsevier, vol. 88(C).
    3. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-888, September.
    4. McKitrick, Ross R., 1998. "The econometric critique of computable general equilibrium modeling: the role of functional forms," Economic Modelling, Elsevier, vol. 15(4), pages 543-573, October.
    5. Lecca, Patrizio & Swales, Kim & Turner, Karen, 2011. "An investigation of issues relating to where energy should enter the production function," Economic Modelling, Elsevier, vol. 28(6), pages 2832-2841.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Nested CES; Translog; Multi-factor production function; Partial elasticities; Prediction intervals; Morishima elaticties of substitution; Nested structures;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D5 - Microeconomics - - General Equilibrium and Disequilibrium

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