The Use of Linear Logit Models for Dynamic Input Demand Systems

Abstract

This paper demonstrates that a linear logit model, with appropriate constraints, can be used to specify a system of cost share equations that satisfy neoclassical economic conditions. Unlike many other flexible functional forms, the logistic function is particularly well suited for incorporating dynamic adjustment mechanisms. The empirical results suggest that the use of static models overstates short-run own-price elasticities and understates the corresponding long-run price effects.