Comparing Fourier and translog specifications of multiproduct technology: Evidence from an incomplete panel of French farmers

Abstract

Selecting a functional form for a cost or profit function in applied production analysis is a crucial step in assessing the characteristics of a technology. The present study highlights differences in the description of a technology which are induced by fitting a Fourier or a translog cost functions. On average, both forms provide similar information on the technology. However, estimation results and statistical tests tend to favour the Fourier specification. This is mainly because many trigonometric terms appear to be significant in our application. Accordingly, our results show that the Fourier cost function is able to represent a broader range of technological structures than the translog. The paper presents an application to the case of an incomplete panel of French farmers. In the process, three technical issues are addressed: the missing data problem, the choice of the order of approximation and the conditions ensuring asymptotic normality of Fourier parameters estimates.

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