Lagomarsino, E. (2020)

A graphical approach to select the nested structure of a CES function. Economics Bulletin40(4), 2887-2893

Abstract:

The existing literature estimating nested CES production functions has so far neglected to provide a convincing method to discriminate among alternative nested structures. This study proposes a new approach to evaluate empirically which nested structure describes the production technology more closely. It is based on the estimation of translog point elasticities and on the graphical analysis of their distribution. A Monte Carlo simulation framework is used to demonstrate the applicability of the method given alternative parametrizations