A Bayesian approach to analyze regional elasticities

Provided by Research Papers in Economics

38^th Congress Of The

European Regional Science Association

28 August- 1 September 1998

Europe quo vadis ? - Regional Questions at The Turn Of The Century

Session C7

Tullio Gregori

Dip. di Scienze Economiche e Statistiche,
Un. di Trieste

Trieste, Italy

Fax 0039 40 567543

tulliog@econ.univ.trieste.it

A BAYESIAN APPROACH TO ANALYZE
REGIONAL ELASTICITIES

ABSTRACT:

This paper presents the bayesian approach to analyze regional
elasticity distributions with a regular translog cost function. It is known
that a proper statistical analysis of elasticities can be performed only with
the bayesian approach. We can take advantage of this methodology to
form reasonable priors using national data. This way we can produce
sounder inferences without much elicition by the analyst. To compare
results this approach is applied to a cost function for the main regions in
Italy with a diffuse prior too. Price and substitution elasticities are
derived conditional on factor shares or covariates. The low posterior
probability than inequality constraints hold with an noninformative prior
shows how bayesian methods can be fruitfully employed to compare
regional elasticities with a proper prior obtained from national data.

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