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A Note on Parameterizing Input Distance Functions: Does the Choice of a Functional Form Matter?

Author

Listed:
  • Rolf Färe

    (University of Arkansas)

  • Michael Vardanyan

    (IESEG School of Management (LEM-CNRS))

Abstract

We use a Monte Carlo experiment to compare the quadratic and translog functional forms in terms of their ability to approximate known frontiers that possess convex curvature. Unlike some of the existing simulation studies that have studied this topic, we find that both functional forms provide a reliable approximation to a true frontier. Our results lend support to existing explanations concerning the translog form’s innate propensity to yield convex, rather than concave, frontier estimates.

Suggested Citation

  • Rolf Färe & Michael Vardanyan, 2014. "A Note on Parameterizing Input Distance Functions: Does the Choice of a Functional Form Matter?," Working Papers 2014-EQM-03, IESEG School of Management.
    • Handle: RePEc:ies:wpaper:e201403
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    References listed on IDEAS

    as
    1. Chambers, Robert & Färe, Rolf & Grosskopf, Shawna & Vardanyan, Michael, 2013. "Generalized quadratic revenue functions," Journal of Econometrics, Elsevier, vol. 173(1), pages 11-21.
    2. M. Denny, 1974. "The Relationship Between Functional Forms for the Production System," Canadian Journal of Economics, Canadian Economics Association, vol. 7(1), pages 21-31, February.
    3. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    4. 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.
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    6. Vardanyan, Michael & Valdmanis, Vivian G. & Leleu, Hervé & Ferrier, Gary D., 2022. "Estimating technology characteristics of the U.S. hospital industry using directional distance functions with optimal directions," Omega, Elsevier, vol. 113(C).

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    More about this item

    Keywords

    Distance Functions; Parameterization;

    JEL classification:

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

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