Estimation of technical change and price elasticities: a categorical time–varying coefficient approach

Guohua Feng, Jiti Gao, Xiaohui Zhang

Research output: Contribution to journalArticleResearchpeer-review


We propose a categorical time-varying coefficient translog cost function, where each coefficient is expressed as a nonparametric function of a categorical time variable, thereby allowing each time period to have its own set of coefficients. Our application to U.S. electricity firms reveals that this model offers two major advantages over the traditional time trend representation of technical change: (1) it is capable of producing estimates of productivity growth that closely track those obtained using the Törnqvist approximation to the Divisia index; and (2) it can solve a well-known problem commonly referred to as “the problem of trending elasticities”.

Original languageEnglish
Pages (from-to)117-138
Number of pages22
JournalJournal of Productivity Analysis
Issue number3
Publication statusPublished - Dec 2018


  • Categorical Time-varying Coefficient Model
  • Semiparametric Method
  • Technical Change and Productivity

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