Journal article
Imposing Curvature and Monotonicity on Flexible Functional Forms: An Efficient Regional Approach
Computational economics, Vol.36(4), pp.309-339
12/2010
Handle:
https://hdl.handle.net/2376/117155
Abstract
In many areas of economic analysis, economic theory restricts the shape of functions. Examples are the monotonicity and curvature conditions that apply to utility, profit, and cost functions. Here we extend upon a currently available estimation method (Terrell, J Appl Econometr 11:179–194, 1996) for imposing regularity regionally on a connected subset of the regressor space. Our method offers important advantages by imposing theoretical consistency not only locally, at a given evaluation point but also within the whole empirically relevant region of the domain associated with the function being estimated. The method also provides benefits through higher flexibility, which generally leads to a better model fit to the sample data. Specific contributions of this paper are (a) to increase the computational speed, (b) to provide regularity preserving point estimates, and (c) to illustrate the benefits of this revised regional approach via numerical simulation results.
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Details
- Title
- Imposing Curvature and Monotonicity on Flexible Functional Forms: An Efficient Regional Approach
- Creators
- Hendrik Wolff - Department of Economics University of Washington 349 Savery Hall Box 353330 Seattle WA 98195-3330 USAThomas Heckelei - Institute for Food and Resource Economics University of Bonn Bonn GermanyRon Mittelhammer - School of Economic Sciences Washington State University Pullman WA USA
- Publication Details
- Computational economics, Vol.36(4), pp.309-339
- Academic Unit
- Economic Sciences, School of
- Publisher
- Springer US; Boston
- Identifiers
- 99900548393701842
- Language
- English
- Resource Type
- Journal article