The CES-Translog: Specification and Estimation of a New Cost Function

Abstract

In this paper we propose and estimate a new single-product cost function, the CES-translog. Like the translog, it is a flexible functional form, but it is compatible with a wider range of substitution possibilities than either the CES or the translog. As its name suggests, the CES-translog includes both the CES and the translog as special cases and thus permits nested testing using conventional statistical techniques. We estimate the new form and its special cases under a standard modeling scenario using eight data sets and find it significantly superior to the translog in all but one.