Economic assumptions and choice of functional forms: comparison of top down and bottom up approaches |
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Authors: | Hang Keun Ryu |
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Institution: | (1) Department of Economics, Chung-Ang University, Seoul, 156-756, Korea |
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Abstract: | Two alternative model building approaches are analyzed and compared. The general to specific modeling (top down approach)
starts with a general model and subjects it to a sequence of restrictions to determine an acceptable specific model. This
approach can start with a series expansion and the concavity or homotheticity conditions can be imposed to modify it into
a cost or a production function. The simple to general modeling (bottom up approach) starts with a well known simple model
and extends it until a complete system is formed. This approach can start with a Cobb-Douglas function (which satisfies the
concavity and homogeneity conditions) and extends it to include the desired complexity. Relative advantages and disadvantages
of the two approaches are discussed and tabulated. The electricity generation data is applied to compare the performance of
these two approaches.
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Keywords: | Top down and bottom up approaches Translog cost function Generalized production function Returns to scale function Series expansion |
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