This is a generalization of cobb douglas cost function. Basic regression analysis an equation formula in eviews is a mathematical. The importance of a specific functional form is that it can be used in empirical work. The name translog stands for transcendental logarithmic. Estimating a derived demand system from a translog cost. Taher bayero uniuersity, kano, nigeria received 27 august 1984 if the production technology is nonhomothetic, efficient estimation of the translog approximation. A translog cost function of the integrated air freight. I am not very familiar with its implications in consumer theory, but from the production point of view, ive seen it widely used. The function takes and as its inputs and returns minimum cost, where is a vector of prices for the inputs to production and is a single output. A translog cost estimation of capitallabour substitubility in malaysian manufacturing sector maisom abdullah h. It may not be apparent from the equation above, but the translog form nests the cobbdouglas form and is equivalent if all and are zero. I have attached a word document of my translog function and all the variables. In general, the translog form does not impose any a priori.
This paper analyzes the cost structure of the integrated air freight business by means of a translog cost function. A generalised example of a translog production function, where y is the output produced, and x n is the quantity of input n used in the production process, takes the form. The translog function christensen, jorgenson, and lau, 1973 has become an integral tool for analyzing the production structure of many firms and industries. It also suggests how the main results extend to any functional form with certain properties. Treating crops and livestock as two distinct outputs, this study utilizes standard results of neoclassical duality theory to. Economics letters 17 1985 3445 341 northholland estimating the translog cost function with insufficient observations a. This is a generalization of cobbdouglas cost function. The translog function can be used not only in preferences but also in production and cost functions. A translog cost function analysis with implications for economic development patrick mccarthy school of economics georgia institute of technology final report submitted to georgia department of transportation georgia transportation instituteuniversity transportation center december 2011. How to deal with multicollinearity in a translog production.
To this end, the translog cost function which is considered as a more robust framework. Dear all, i would like to estimate a translog cost function with two inputs price of labour and price of physical capital, one single output total assets and a time trend. If the production function is cobbdouglas and constant returns to scale. Consequently, the shortcoming in the estimation of the respective production function is the occurrence of collinearity. The almost ideal and translog demand systems holt, matthew t. The only parameter of the cost function that is not captured by the derived demand system is the intercept term which is not used in calculating price or substitution elasticities. In this context, di, dx andfrs fr for all i,j,s, and r. My question is about the results that i got after i did a regression on the translog production function for panel data. The case of the translog cost function this note provides a useful property of the allenuzawa partials for the translog cost function. The translog function doesnt impose additivity and homogeneity, and hence constant elasticity of substitution.
Heineke in this paper we study the relationship between costs, input prices and activity levels in a sample of approximately thirty medium sized city police departments for the years 1968, 69, 71 and 73. Hi, i am trying to use a translog cost function using sur to compute elasticities and total factor productivity. Translog transcendental logarithmic production function. A translog cost estimation of capitallabour substitubility. Before logarithms are taken, the function is c da0y a y y 1 2 ayy lny yn id1 w i i n id1 waiy lny i.
The translog cost function is frequently used in the banking literature, providing an estimation for the marginal cost of production for banks. View translog cost function research papers on academia. Sep 28, 2015 what are the different methods for dealing with multicollinearity in a translog production function. The translog cost function can be estimated in a number of ways. We investigate the behavior of three versions of the translog cost function. Pdf eviews 7 users guide ii nesrin eskiocak zubaroglu. The translog function is conceptually simple and imposes no a priori restrictions on elasticities of substitution and returns to scale.
How can i calculate the translog cost function for cross. Purdue university, north carolina state university 14 march 2009 online at mpra paper no. Welcome to translog ii, a software designed to record user activity data in the process of translation, as well as reading, writing, copying and editing. Transcendental logarithmic cost function1 the purpose of the translog cost function is to identify a specific functional form for a cost function that embodies all of the assumptions and results of our cost minimization model. Usage translogcostest cname, yname, pnames, data, fnames null, shifternames null, datalogged false, homprice true, arguments cname. The translog production function is an approximation of the ces function by a secondorder taylor polynomial about, i. Hi everyone, i need to estimate the following translog production function. Translog cost function overview the transcendental logarithmic translog functional form can capture many of the attributes of a cost function that are implied by economic theory.
This paper examines the selection of data source and econometric technique for studies of banking efficiency using translog cost functions. Thus, y is a function of k, l, and all possible interactions kl, kk, ll. Ij 1 j 2 iy j where i, j k, l and in c is the lgarithm of total cost, in pi is the logarithm of the ith input price, and in yi is the logarithm of output. Mar 20, 2018 translog cost function 20 mar 2018, 15. Tell us what you think about the sas products you use, and well give you a free ebook. Moreover, only the cost shares in the system were estimated, that is, the total cost function was not included. Some aspects of the translog production function estimation. Theworldbank december20 abstract arkolakis, costinot and rodriguezclare 2012 show that many. In economics and econometrics, the cobbdouglas production function is a particular functional form of the production function, widely used to represent the technological relationship between the amounts of two or more inputs particularly physical capital and labor and the amount of output that can be produced by those inputs.
A new system of logchange index numbers for multilateral comparisons. For the regression with a translog function, it is need to create a combination of the fundmental variables. Thus, y is a function of k, l, and all possible interactions kl. Osmanrani abstrak tujuan utama kajian ini ialah untuk mengemukakan bukti empirik tambahan tentang keanjalan penggantian antara modal dan buruh bagi industri pembuatan di malaysia pada peringkat 5digit dengan. Their performances are assessed according to three criteria.
The transcendental logarithmic cost function looks like. The estimated coefficients of the translog cost function may be used to construct estimates of the elasticity of substitution between factors of production. C mathematical and quantitative methods c5 econometric modeling c51 model construction and estimation. This translog dual cost function can be regarded as a quadratic approximation to the unspecified true cost function. Estimating the translog cost function with insufficient. Data on french apple producers in 1986 bleymueller79e25. These include the method of the translog cost function that have been proposed by christensen et al. The empirical estimation of production and cost functions is a standard exercise in econometrics. What are the different methods for dealing with multicollinearity in a translog production function. Stata module to create new variables for a translog. Checking for variance inflation factor vif and ensuring that it is less than 10 therefore, if vif 10, eliminate the variables in a stepwise way. Taher bayero uniuersity, kano, nigeria received 27 august 1984 if the production technology is nonhomothetic, efficient estimation of the translog approximation requires joint estimation of the cost and. Because the translog production function is much more general it has a flexible functional form permitting the partial elasticities of substitution between inputs to vary, i will use numerical analysis to obtain the cost functions associated with a given translog production function.
I was estimating technical efficiency of tomato producing farms with translog production function. Before logarithms are taken, the function is c da0y a y y 1 2 ayy lny yn. I structurally estimate the parameters and conduct. The transcendental logarithmic cost function looks like the. Structural estimation of a flexible translog gravity model shawnw. The next obvious step is to generate a function which allows. A comparison of purchasing power parity between the pound sterling and the australian dollar 1979. Derivatives of a cobbdouglas function cobbdouglasopt. In a translog production function, the number of parameters practically explodes as the number of considered production factors increases. The translog production function and variable returns to scale. General econometric questions and advice should go in the econometric discussions forum. Marginal costs of translog production function in micecon. I use the xtfrontier command, but dont know if its right.
The cost function is based on quarterly timeseries data from 1990 to 2010 for fedex and ups. Technology can be represented by a production function, such as cobbdouglas and constant elasticity of substitution ces place a restriction on elasticity of substitution cobb and douglas 1928, arrow, et al. Optimal values of independent variables of a cobbdouglas. Ray the translog cost function provides a convenient framework for analyzing u. Translog cost function 901 notes 22 department of economics. The translog function form is widely applied in empirical studies for it is regarded as the second order approximation to the unknown function. One benefit of the translog form is that the system of factor demands gives nearly the same information as the cost function. Estimation of the demand function of water for the industrial sector. Any sensible cost function must be homogenous of degree 1 in input prices.
Calculate dependent variable of a cobbdouglas function cobbdouglasderiv. As an illustration of the process of estimating a system of equations in eviews, we estimate a translog cost function using data from berndt and. Substitute the values of these parameters into the translog cost function, and estimate its remaining three parameters, c, cq, and dqq, using linear multiple regression. Translog cost function posted 04092009 663 views i am having a problem writing the code for a translog cost function does anyone have any references to share. On the estimation of production functions george e. Calculate dependent variable of a cobbdouglas function.
The tcf needs to be specified for every country seperately and i include year and specialization dummies 4 types banks. Estimating translog cost function for technical questions regarding estimation of single equations, systems, vars, factor analysis and state space models in eviews. Structural estimation of a flexible translog gravity model. However, i am struggling with the interpreting of the function itself into eviews. The estimated coefficients of the translog production and cost functions will vary with the parameters sigma, nu, alpha, beta and gamma of the ces production function. In the translog function 1, this requires that sbr 1, f,s 0 r 1,2. Estimating a derived demand system from a translog cost function. The purpose of the translog cost function is to identify a specific functional form for a cost function that embodies all of the assumptions and results of our cost minimization model. Hey all, im estimating my translog cost function, with panel data for 33 different countries, 10 years on individual bank data.
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