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Journal Articles
July 2007
Article
Nonparametric estimation of homothetic and homothetically separable functions
Type: Journal Articles
Published in: Econometrica
Volume, issue, pages: Vol. 75, No. 4, pp. 1209-1227
Previous version: cemmap Working Papers [Details]

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For vectors x and w, let r(x,w) be a function that can be nonparametrically estimated consistently and asymptotically normally. We provide consistent, asymptotically normal estimators for the functions g and h, where r(x,w) = h[g(x),w], g is linearly homogeneous and h is monotonic in g. This framework encompasses homothetic and homothetically separable functions. Such models reduce the curse of dimensionality, provide a natural generalization of linear index models, and are widely used in utility, production, and cost function applications. Extensions to related functional forms include a generalized partly linear model with unknown link function. We provide simulation evidence on the small sample performance of our estimator, and we apply our method to a Chinese production dataset.

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