Specification and Estimation of Nonseparable Two-Stage Technologies: The Leontief CES and the Cobb-Douglas CES

Abstract

A two-stage technology is a sequential production process that first uses pri mary inputs to produce intermediate inputs and then uses theintermediate inputs to produce final output. In this paper the authors show that two-stage technologies provide a general procedure for combining production functions or cost functions to obtain new specifications suitable for empirical production analysis. They investigate two new cost functions for which the input demand systemssatisfy global regularity conditions in a wide range of nondegenerate cases. Using six data sets, the authors estimate thesetwo input demand systems, both with and without imposing global regularity conditions, and find that one of them performs well. Copyright 1987 by University of Chicago Press.