University of California Transportation Center

Economists have devoted a large research effort to the estimation of cost functions and profit functions. Since the popularization of the dual approach to such functions, econometricians have focussed particularly on methods for fitting functions that satisfy the restrictions implied by optimizing behavior, minimizing costs or maximizing profits. For the most part, researchers have sought simple parametric functional forms that are sufficiently flexible to approximate well all possible functions in the families of cost and profit functions. Given such parametric functions, much of the estimation has followed the method of least squares.