Primal and Dual Approaches and Functional Forms: Production Function Estimation and Explanation

This chapter begins with an attempt at modelling profit maximisation, although not surprisingly, this is unsuccessful and dual specifications are pursued no further. Similarly, direct estimation of the share equations for the translog production function give very poor results and so flexible functional forms are also abandoned. Consequently the chapter concentrates on the Cobb-Douglas form of the capital, labour, energy and materials (KLEM) model (Berndt and Khaled, 1979), which is applied to cross sectional data at the industry level. Then annual changes over seven years of data for each of the three industries are compared.