Cost, Revenue, and Profit Function Estimates

Abstract

This chapter reviews the ways in which cost, revenue, and profit functions are used to identify and characterize an underlying technology. It concentrates on the more widely used functional forms to motivate various issues in the flexibility of various parametric functions, in the imposition of regularity conditions, in the use of non-parametric estimation of models, and in standard econometric models used to estimate the parameters of these different functional characterizations of an underlying technology. The modeling scenarios we consider also allow allocative and technical distortions and address how such distortions may be modeled empirically in the specification and estimation of the dual functional representations of the underlying primal technology.