Which nesting structure for the CES? A new selection approach based on input separability

Elena Lagomarsino

Research output: Contribution to journalArticlepeer-review

Abstract

Nested CES production functions are very popular in economic applications, but their empirical validity has been questioned. In this paper, we outline a simple method that can be used to test whether a given dataset is consistent with a CES production technology and that informs on which nesting structure describes it more closely. The method is based on empirical testing input separability conditions, derived for all the feasible 3-input and 4-input nested CES. A Monte Carlo simulation environment is exploited to assess the accuracy of the test.

Original languageEnglish
Article number105562
JournalEconomic Modelling
Volume102
Early online date4 Jun 2021
DOIs
Publication statusPublished - Sep 2021

Keywords

  • Input separability
  • Nested CES
  • Nesting structures
  • Production function
  • Taylor approximation
  • Translog

ASJC Scopus subject areas

  • Economics and Econometrics

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