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

Along with its advantages, the statistical production function also
has a number of drawbacks. Firms tend to cluster around one set of equip-
ment and operating rules (that representing "current practices"). Insofar
as this is true, there will be no observations on other techniques of pro-
duction. Even where some differences can be observed, firms are unlikely
to impose a Latin-square experimental design on their operations. Thus,
the observations on most variables will show limited range and many vari-
ables will be collinear. While a vast number of techniques have been
developed for estimation, it remains true that there is basically no an-
swer to the problems of collinearity and limited range of observations.
There are two ways to estimate production functions. One involves
building in all a priori information in order to get the best possible
estimates. A second way is to make use of none of the a priori infor-
mation and simply let the estimates come out as they will. The former
technique generates better estimates. However, there is always a ques-
tion about what is known a priori, and what is only convention. A
priori information often consists of ranges of reasonable parameter
values rather than single values. One reason for using the second
approach is that any a priori information can be used to check the
estimated parameters. For example, one can check the estimated pro-
duction function against the accumulated experience of men who have
worked in the industry. In the .case of Barge Transportation, some of
this experience has been quantified in ICC cost findirig procedures.
Finally, there are investigations of the physical-engineering rela-
tions between changes in such characteristics as towboat horsepower •
and tow size and the resulting change in tow speed.
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