Nonconvexity in Production and Cost Functions: An Exploratory and Selective Review

The purpose of this contribution is to provide an overview of developments in nonconvex production technologies and economic value functions, with special attention to the cost function. Apart from a somewhat selective review of theoretical issues, the emphasis is on whether the assumption of convexity makes a difference in practice. Anticipating our conclusion, we argue that traditional convex empirical results differ on average rather markedly from alternative nonconvex ones. This should make the discipline reconsider its traditional relationship with convexity in both theoretical and applied production analysis.