Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/204345
Authors: 
Czekaj, Tomasz Gerard
Henningsen, Arne
Year of Publication: 
2012
Series/Report no.: 
FOI Working Paper No. 2012/12
Abstract: 
We investigate and compare the suitability of parametric and non-parametric stochastic regression methods for analysing production technologies and the optimal firm size. Our theoretical analysis shows that the most commonly used functional forms in empirical production analysis, Cobb-Douglas and Translog, are unsuitable for analysing the optimal firm size. We show that the Translog functional form implies an implausible linear relationship between the (logarithmic) firm size and the elasticity of scale, where the slope is artificially related to the substitutability between the inputs. The practical applicability of the parametric and non-parametric regression methods is scrutinised and compared by an empirical example: we analyse the production technology and investigate the optimal size of Polish crop farms based on a firm-level balanced panel data set. A nonparametric specification test rejects both the Cobb-Douglas and the Translog functional form, while a recently developed nonparametric kernel regression method with a fully nonparametric panel data specification delivers plausible results. On average, the nonparametric regression results are similar to results that are obtained from the parametric estimates, although many individual results differ considerably. Moreover, the results from the parametric estimations even lead to incorrect conclusions regarding the technology and the optimal firm size.
Subjects: 
production technology
nonparametric econometrics
panel data
Translog
firm size
Polish crop farms
JEL: 
C14
C23
D24
Q12
Document Type: 
Working Paper

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