A generalization of the Symmetric Translog functional form

Abstract

Feenstra and Weinstein introduced a special case of the translog cost function, the Symmetric Translog (ST) Cost Function, which replaced all of the second order parameters which are present in the Translog functional form by a single positive parameter. The ST functional form is useful in the context of estimating consumer preferences over related products and provides an alternative to the use of Constant Elasticity of Substitution (CES) preferences in this context. The ST functional form has a potential advantage over the CES functional form that it produces finite estimates for reservation prices for missing products whereas the CES reservation prices are always infinite. The present paper proposes a Generalized Symmetric Translog Cost Function which also generates finite reservation prices but is more flexible than the ST functional form.