INCORPORATING MONOTONICITY AND CONCAVITY CONDITIONS IN FLEXIBLE FUNCTIONAL FORMS

Empirical economists using flexible functional forms often face the di sturbing choice of drawing inferences from an approximation violating properties dictated by theory or imposing global restrictions that gre atly restrict the flexibility of the functional form. Focusing on the cost function, this paper presents an alternative approach which impos es monotonicity and concavity properties only over the set of prices w here inferences will be drawn. An application investigating elasticiti es for Berndt-Wood data set using the translog, generalized Leontief, and symmetric generalized McFadden flexible functional forms illustrat es the technique.