Incorporating price-induced innovation in a symmetric generalised McFaddencost function with several outputs

This paper proposes a multiple-output Symmetric Generalised McFadden (SGM) cost function, incorporating both exogenous and endogenous technological ch ange. Whilst exogenous technological change is captured by the usual time t rend, endogenous or price-induced technological change is cast within a par tial-adjustment framework involving lagged input prices. The study points t o various dimensions or components of technological change, and allows to d isentangle "pure" factor substitution, given the state of the technology, f rom factor substitution due to price-induced changes in technology. Under t he conditions of non-jointness in input quantities, the model further allow s to identify technological change biases for each output separately. An em pirical application is presented in which the proposed model is applied to time-series data on the feed manufacturing industry in Belgium. To improve on the econometrics, the SGM cost function also incorporates linear splines .