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Generalized quadratic revenue functions

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In this paper we focus on specification of revenue functions in their dual price space. We consider two distance functions, both dual to the revenue function: Shephard output distance function and the directional output distance function, both in price space. The former is multiplicative, satisfying homogeneity, the latter is additive satisfying transitivity. Functional equation methods yield translog specification for the Shephard case and quadratic for the directional case. Monte Carlo evidence suggests that the quadratic specification more precisely represents technology.

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Robert G. Chambers, Rolf Färe, Shawna Grosskopf

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Adapt according to the presented license agreement and reference the original author.