Choice of the empirical definition of zero in the translog multiproduct cost functional form

Abstract

ABSTRACTThe translog cost function is valuable to researchers for empirical analysis in themodelling of indirect cost and profit functions. A flaw of the functional form is in themodelling of zero output values. This study examined the impacts of empirical definition of zero output values on price elasticities, economies of scope and scale, using the translog cost function. Estimation of a system of cost and factor share equations with regularity condition imposed was conducted. Results show that the choice of default values affects policy recommendations.