Journal
JOURNAL OF ECONOMETRICS
Volume 108, Issue 1, Pages 199-202Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/S0304-4076(01)00131-2
Keywords
technology; regularity; curvature; production; flexible
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In specifications of tastes and technology, econometricians often impose curvature globally, but monotanicity only locally or not at all. In fact monotanicity rarely is even mentioned in that literature. But without satisfaction of both curvature and monotonicity, the second-order conditions far optimizing behavior fail, and duality theory fails. The resulting first-order conditions, demand functions, and supply functions become invalid. Although unconstrained specifications of technology are more likely to produce violations of curvature than monotonicity, I believe that induced violations of monotanicity become common, when curvature alone is imposed. Hence the current common practice of equating regularity with curvature is not justified. (C) 2002 Elsevier Science B.V. All rights reserved.
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