The Role of Curvature in Estimating Accurate Dual Functions
Tauer, Loren W
A production function highly concave in inputs will have a dual profit function less convex in prices. Even large variations in prices will cause little variation in input usage and output, resulting in poor profit function estimates. This is demonstrated using Monte Carlo simulation with various curvatures and error structures.
WP 2001-02 May 2001
Charles H. Dyson School of Applied Economics and Management, Cornell University