Yi = fai Xfa2 Xfa3 ui


where a = ln fa. This model too is linear in the parameters. But now consider the following version of the C-D function:

As we just noted, C-D versions (14.1.2a) and (14.1.3a) are intrinsically linear (in the parameter) regression models, but there is no way to transform (14.1.4) so that the transformed model can be made linear in the parameters.2 Therefore, (14.1.4) is intrinsically a nonlinear regression model.

Another well-known but intrinsically nonlinear function is the constant elasticity of substitution (CES) production function of which the Cobb-Douglas production is a special case. The CES production takes the following form:

where Y = output, K = capital input, L = labor input, A = scale parameter, 5 = distribution parameter (0 < 5 < 1), and fa = substitution parameter (fa > — 1).3 No matter in what form you enter the stochastic error term ui in this production function, there is no way to make it a linear (in parameter) regression model. It is intrinsically a nonlinear regression model.

Was this article helpful?

0 0
Rules Of The Rich And Wealthy

Rules Of The Rich And Wealthy

Learning About The Rules Of The Rich And Wealthy Can Have Amazing Benefits For Your Life And Success. Discover the hidden rules and beat the rich at their own game. The general population has a love / hate kinship with riches. They resent those who have it, but spend their total lives attempting to get it for themselves. The reason an immense majority of individuals never accumulate a substantial savings is because they don't comprehend the nature of money or how it works.

Get My Free Ebook

Post a comment