A NOTE ON THE IMPORTANCE OF TESTING FOR REGULARITIES FOR ESTIMATED FLEXIBLE FUNCTIONAL FORMS

In empirical productivity analysis it has become customary to use flex ible functional forms to represent a film's production technology by e stimating cost functions. In this note we suggest a procedure to calcu late the region where an estimated translog cost function meet the req uired regularities (positive cost, positive marginal cost, homogeneous , monotonicity and concavity in input prices). We calculate this regio n for the US Bell cost function as reported by Evans and Heckman (1984 , 1986), and show that the estimated cost function had negative margin al cost in most of the test region.