On estimation of the CES production function—Revisited |
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Authors: | Arne Henningsen Géraldine Henningsen |
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Institution: | a Institute of Food and Resource Economics, University of Copenhagen, Rolighedsvej 25, 1958 Frederiksberg C, Denmarkb Systems Analysis Division, Risø National Laboratory for Sustainable Energy, Technical University of Denmark, Frederiksborgvej 399, P.O. Box 49, Building 110, 4000 Roskilde, Denmark |
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Abstract: | 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. |
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Keywords: | C13 C51 D22 E23 |
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