Q2 Z2,(Q2) Z2(Q2) - Institute for Water Resources - U.S. Army

performed either simultaneously, or sequentially (under some conditions
it can be aggregated), nor does it describe the cost-output relationship.
The second method is the use of statistical estimation procedures.
,• •
This is a more direct and traditional approach to obtaining cost estimates.
"Basically, statistical methods are a substitute for experimental controls
in attempting to establish and measure causal relationships, statistical
techniques being used when controls are either unavailable or too expen-
.
The statistical approach is based on observed rates of output
and expenditure collected by firms. Cross-section Or time-series data
are used in the framework of an appropriate statistical model to deter-
mine the parameter values. The selection of the model may be based on
theortticai or technological knowledge, or simply on'goodness of fit.
The two methods are no mutually exclusive. Statistical methbds
are frequently employed in deriving the technological parameter estimates
Of•engineering relationships; knowledge of technological constraints can
be used to select the appropriate model for statibtical production or cost
estimates. The two approaches do, however, possess different interprets-
tiOns. The engineering relationships, as they embody the available tech-
nology, describe the set Of alternative ways of performing a partioular
' task independent of the relative prices of the inputs. Tht engineering
relationships thus desCribe the teChnologically most efficientways of
accomplishing the task. Given the prices of the various inputs, the
economically efficient production method can be selected, that is, the
. method which produces a given output at the least cost. Cost relation-
ships obtained in this war, then, represent the coSt'curves Of economic
theory.
*All footnotes appear following text, beginning on p. 152.
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