The CES‐‐Translog Production Function, Returns to Scale and AES

Abstract

The translog functional form imposes no a priori restrictions on the substitution possibilities between the factor inputs, by relaxing the assumption of strong separability, and the CES± translog cost function specification allows for testing homothetic technology with Hicks-neutral technical change. In this paper an n-factor CES ± translog production function is presented which develops the parameters to directly assess scale effects from those due to technology in the production structure. In addition, by applying Shephard's lemma it was possible to derive the input demand functions, as well as the partial elasticities of substitution and the cross-partial price elasticities of demand for a generalized CES± translog production structure.

What is the impact of rural bank credit access on the technical efficiency of smallholder cassava farmers in Ghana? An endogenous switching regression analysis

“…The production function can follow either the Cobb-Douglas functional form or the translog functional form. The translog functional form is generally specified as (Kymn and Hisnanick 2001):…”

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“…Several studies found the translog specification preferable to the Cobb-Douglas. Tzouvelekas (2000) and Kymn and Hisnanick (2001) could not reject the translog in favor of the Cobb-Douglas. Heyer et al (2004) also found the translog superior when accounting for factor utilization.…”

“…3 only contains the linear coefficient input variables without including derivative variables such as interactions and quadratic forms of production input variables. However, the translog production function is superior to the Cobb-Douglas function in approximating unknown production functions (Kymn & Hisnanick, 2001;Shih et al, 1977). The translog relaxes strong assumptions of the Cobb-Douglas like homotheticity, homogeneity and separability (Kymn & Hisnanick, 2001;Tzouvelekas, 2000).…”

“…However, the translog production function is superior to the Cobb-Douglas function in approximating unknown production functions (Kymn & Hisnanick, 2001;Shih et al, 1977). The translog relaxes strong assumptions of the Cobb-Douglas like homotheticity, homogeneity and separability (Kymn & Hisnanick, 2001;Tzouvelekas, 2000). By not imposing these restrictions, the translog allows for variable returns to scale and non-neutral technical change (Kim, 1992;Tzouvelekas, 2000).…”

“…However, Konishi and Nishiyama (2002) could not reject the translog for Japanese manufacturing. The translog's flexibility allows it to account for complex production structures with multiple factors (Binswanger, 1974;Kymn & Hisnanick, 2001). The translog can be estimated with panel data to gain efficiency, as shown by Tzouvelekas (2000).…”