ABSTRACT
This chapter discusses a number of hypotheses. The first hypothesis is that the production function is of Cobb-Douglass form, given the translog production function. The generalized likelihood ratio-tests (LR statistic) reject this hypothesis, which indicates that the input elasticity and substitution relationships are not constant across the firms. The next hypothesis is that the inefficiency effects are not a linear function of the explanatory variables specified in the model. This hypothesis is also rejected, which implies that the joint effect of these variables on the inefficiency of production is significant even if the individual effect of one or more of variables may not be statistical or significant. The next hypothesis that inefficiency effects are absent from the model is also strongly rejected, which indicates that the production function is not same as the traditional average response function which can be estimated efficiently by ordinary least square method.
