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A model-combined estimator of elasticity of scale

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  • M. Li

Abstract

Zellner and Ryu examined several popular specifications of elasticity of scale that characterizes production functions. This note goes further by combining these functional forms and proposing a model-averaged estimator of elasticity of scale. The methodology used in Bayesin Model Averaging, and the procedure is illustrated by an empirical example. Results show that the data clearly prefer some models over the others, but it can be difficult to select a model that overwhelmingly dominates the rest. This model-combined estimator of elasticity of scale is free of choosing a single specification from many competing ones. Moreover, this approach is readily applicable to comparable issues regarding production functions.

Suggested Citation

  • M. Li, 2003. "A model-combined estimator of elasticity of scale," Applied Economics Letters, Taylor & Francis Journals, vol. 10(2), pages 119-122.
    • Handle: RePEc:taf:apeclt:v:10:y:2003:i:2:p:119-122
    DOI: 10.1080/1350485022000041005
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    References listed on IDEAS

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    1. S. Clemhout, 1968. "The Class of Homothetic Isoquant Production Functions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(1), pages 91-104.
    2. Ringstad, Vidar, 1974. "Some Empirical Evidence on the Decreasing Scale Elasticity," Econometrica, Econometric Society, vol. 42(1), pages 87-101, January.
    3. Poirier, Dale J, 1991. "A Bayesian View of Nominal Money and Real Output through a New Classical Macroeconomic Window," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(2), pages 125-148, April.
    4. Arnold Zellner & Hang Ryu, 1998. "Alternative functional forms for production, cost and returns to scale functions," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 13(2), pages 101-127.
    5. Revankar, Nagesh S, 1971. "A Class of Variable Elasticity of Substitution Production Functions," Econometrica, Econometric Society, vol. 39(1), pages 61-71, January.
    6. A. Zellner & N. S. Revankar, 1969. "Generalized Production Functions," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 36(2), pages 241-250.
    7. Christensen, Laurits R & Greene, William H, 1976. "Economies of Scale in U.S. Electric Power Generation," Journal of Political Economy, University of Chicago Press, vol. 84(4), pages 655-676, August.
    8. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
    9. Poirier, Dale J, 1991. "A Bayesian View of Nominal Money and Real Output through a New Clasical Macroeconomic Window: Is My Window Broken? Reply," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(2), pages 159-161, April.
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