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Generalized quadratic revenue functions

Author

Listed:
  • R. Chambers
  • R. Fare
  • S. Grosskopf
  • M. Vardanyan

    (LEM - Lille - Economie et Management - Université de Lille, Sciences et Technologies - CNRS - Centre National de la Recherche Scientifique)

Abstract

In this paper we focus on the specification of revenue functions in their dual price space. We consider two distance functions–the Shephard output distance function and the directional output distance function–and define both in price space. The former is multiplicative in nature and satisfies homogeneity, whereas the latter is additive and satisfies the translation property. Functional equation methods yield the translog specification in the case of the Shephard distance function and a quadratic specification in the case of the directional distance function. Monte Carlo evidence suggests that the quadratic specification outperforms the translog in large samples and in true models with plenty of curvature.
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Suggested Citation

  • R. Chambers & R. Fare & S. Grosskopf & M. Vardanyan, 2013. "Generalized quadratic revenue functions," Post-Print hal-00840152, HAL.
    • Handle: RePEc:hal:journl:hal-00840152
    DOI: 10.1016/j.jeconom.2012.09.005
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    JEL classification:

    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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