Altay Turk wrote:
How can I test for decreasing returns to scale?
Suppose I ran the regression:
log_y = a+b(logx)+c(logz)
I'd like to test b+c<1
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My guess is that you'd logarithmically transform your variables, perform
ordinary least-squares linear regression, calculate the one-sided 95%
confidence interval of the linear combination of the two slope regression
coefficients and inspect whether the upper confidence limit exceeds one.
Joseph Coveney
clear *
set more off
set seed `=date("2008-05-20", "YMD")'
set obs 25
generate float y = exp(invnormal(uniform()))
generate float x = uniform()
generate float z = uniform()
*
* Begin here
*
foreach var of varlist y x z {
generate float log_`var' = ln(`var')
}
regress log_y log_x log_z
// Below, is the UCL < 1?
lincom _b[log_x] + _b[log_z], level(90)
exit
*
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