The Treatment of Non-Essential Inputs in a Cobb-Douglas Technology : An Application to Mexican Rural Household-Level Data
The standard approach for fitting a
Cobb-Douglas production function to micro data with zero
values is to replace those values with "sufficiently
small" numbers to facilitate the logarithmic
transformation. In general, the estimates obtained are
extremely sensitive to the transformation chosen, generating
doubts about the use of a specification that assumes that
all inputs are essential (as the Cobb-Douglas does) when