When flexible forms are asked to flex too much

Files
TR Number
Date
1994-07
Journal Title
Journal ISSN
Volume Title
Publisher
Western Agricultural Economics Association
Abstract

Taylor series-based flexible forms cannot be interpreted as Taylor series approximations unless all data used in estimation lie in a region of convergence. When flexible forms lose their Taylor series interpretation, elasticity estimates will be biased. When the flexible form is a translog, Rotterdam, or AIDS model, the region of convergence is shown to be the entire positive orthant. Regions of convergence associated with quadratic, Leontief, and any flexible form that does not employ logged arguments are smaller and may not encompass the entire data set. Implications for production and demand analyses and experimental design are discussed.

Description
Keywords
flexible forms, leontief, quadratic, selecting functional forms, translog, unknown regression-functions, least-squares, agricultural economics & policy, economics
Citation
Driscoll, P. J., "When flexible forms are asked to flex too much," JARE 19(1):183-196 (1994); http://www.waeaonline.org/jareonline/archives/19.1%20-%20July%201994/JARE,Jul1994,pp183,Driscoll.pdf