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Some Aspects of Estimating Statistical Cost Functions

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  • Paul R. Johnson

Abstract

This article analyzes the results of an empirical study for a multistore farm supply cooperative with respect to several criticisms of statistical cost functions. It shows that combining time series and cross section data in an analysis of covariance allows one to avoid the regression fallacy and provides an implicit test for the fallacy, thus avoiding one of the most damaging criticisms of cost curve fitting. Further consideration, however, validates Friedman's criticism that statistical cost curves lack identifiability. It is postulated that Hoch's development of the covariance model for production functions to avoid simultaneous equation bias in certain instances also holds for cost curves. It is argued that this is an empirical question depending on the specific circumstances, and, in general, fitting a statistical cost curve is not a test of those cost curves postulated in the theory of the firm.

Suggested Citation

  • Paul R. Johnson, 1964. "Some Aspects of Estimating Statistical Cost Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 46(1), pages 179-187.
    • Handle: RePEc:oup:ajagec:v:46:y:1964:i:1:p:179-187.
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    File URL: http://hdl.handle.net/10.2307/1236482
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    Citations

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    Cited by:

    1. Kilmer, Richard L. & Tilley, Daniel S., 1979. "A Variance Component Approach To Industry Cost Analysis," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 11(2), pages 1-6, December.
    2. French, Ben C., 1977. "PART II. The Analysis of Productive Efficiency in Agricultural Marketing: Models, Methods, and Progress," AAEA Monographs, Agricultural and Applied Economics Association, number 337214, january.
    3. Spielman, Kimberly & Whipple, Glen & McLemore, Dan, 1982. "Estimation Of A Long Run Average Cost Curve Using A Frontier Function: An Application To The Tennessee Livestock Auction Market Industry," 1982 Annual Meeting, August 1-4, Logan, Utah 279185, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    4. Buccola, Steven T. & Polishuk, Leonard M., 1979. "Cost Structures In Livestock Auction Markets: Average Versus Optimal Efficiency," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 0(Number 2), pages 1-10, October.
    5. Buccola, Steven T. & Polishuk, Leonard M., 1979. "Cost Structures In Livestock Auction Markets: Average Versus Optimal Efficiency," Journal of the Northeastern Agricultural Economics Council, Northeastern Agricultural and Resource Economics Association, vol. 8(2), pages 1-10, October.
    6. Lee, Jonq-Ying, 1982. "The Effect Of Price On Coupon Redemption: A Case Study Of Florida Orange Juice Industry Coupon Programs," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 14(1), pages 1-6, July.
    7. McLemore, Dan L. & Whipple, Glen D. & Spielman, Kimberly, 1983. "Ols And Fronteir Function Estimates Of Long-Run Average Cost For Tennessee Livestock Auction Markets," Southern Journal of Agricultural Economics, Southern Agricultural Economics Association, vol. 15(2), pages 1-5, December.

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