On estimation of the CES production function - revisited

TY - JOUR

T1 - On estimation of the CES production function - revisited

AU - Henningsen, Arne

AU - Henningsen, Geraldine

PY - 2012/4

Y1 - 2012/4

N2 - Estimation of the non-linear Constant Elasticity of Scale (CES) function is generally considered problematic due to convergence problems and unstable and/or meaningless results. These problems often arise from a non-smooth objective function with large flat areas, the discontinuity of the CES function where the elasticity of substitution is one, and possibly significant rounding errors where the elasticity of substitution is close to one. We suggest three (combinable) solutions that alleviate these problems and improve the reliability and stability of the results.

AB - Estimation of the non-linear Constant Elasticity of Scale (CES) function is generally considered problematic due to convergence problems and unstable and/or meaningless results. These problems often arise from a non-smooth objective function with large flat areas, the discontinuity of the CES function where the elasticity of substitution is one, and possibly significant rounding errors where the elasticity of substitution is close to one. We suggest three (combinable) solutions that alleviate these problems and improve the reliability and stability of the results.

U2 - 10.1016/j.econlet.2011.12.007

DO - 10.1016/j.econlet.2011.12.007

M3 - Journal article

SN - 0165-1765

VL - 115

SP - 67

EP - 69

JO - Economics Letters

JF - Economics Letters

IS - 1

ER -