Cost functions are nonconvex in the outputs when the technology is nonconvex: convexification is not harmless KU Leuven
This contribution focuses on testing the empirical impact of the convexity assumption in estimating costs using nonparametric specifications of technology and cost functions. Apart from reviewing the scant available evidence, the empirical results based on two publicly available data sets reveal the effect of the convexity axiom on cost function estimates: cost estimates based on convex technologies turn out to be on average between 21% and 38% ...