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When, where and how to perform efficiency estimation

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  • Oleg Badunenko
  • Daniel J. Henderson
  • Subal C. Kumbhakar

Abstract

In this paper we compare two flexible estimators of technical efficiency in a cross-sectional setting: the nonparametric kernel SFA estimator of Fan, Li and Weersink (1996) to the nonparametric bias corrected DEA estimator of Kneip, Simar andWilson (2008). We assess the finite sample performance of each estimator via Monte Carlo simulations and empirical examples. We find that the reliability of efficiency scores critically hinges upon the ratio of the variation in efficiency to the variation in noise. These results should be a valuable resource to both academic researchers and practitioners.

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File URL: http://hdl.handle.net/10.1111/j.1467-985X.2011.01023.x
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Bibliographic Info

Article provided by Royal Statistical Society in its journal Journal of the Royal Statistical Society: Series A (Statistics in Society).

Volume (Year): 175 (2012)
Issue (Month): 4 (October)
Pages: 863-892

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Handle: RePEc:bla:jorssa:v:175:y:2012:i:4:p:863-892

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References

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  1. Dassler, Thoralf & Parker, David & Saal, David S., 2006. "Methods and trends of performance benchmarking in UK utility regulation," Utilities Policy, Elsevier, vol. 14(3), pages 166-174, September.
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  7. Simar, L. & Wilson, P.W., . "Sensitivity analysis of efficiency scores: how to bootstrap in nonparametric frontier models," CORE Discussion Papers RP -1304, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Citations

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Cited by:
  1. Andor, Mark & Hesse, Frederik, 2012. "The StoNED age: The departure into a new era of efficiency analysis? An MC study comparing StoNED and the "oldies" (SFA and DEA)," CAWM Discussion Papers 60, Center of Applied Economic Research Münster (CAWM), University of Münster.
  2. Oleg Badunenko & Daniel Henderson & R. Russell, 2013. "Polarization of the worldwide distribution of productivity," Journal of Productivity Analysis, Springer, vol. 40(2), pages 153-171, October.
  3. Mark Andor & Frederik Hesse, 2014. "The StoNED age: the departure into a new era of efficiency analysis? A monte carlo comparison of StoNED and the “oldies” (SFA and DEA)," Journal of Productivity Analysis, Springer, vol. 41(1), pages 85-109, February.
  4. Mª Pilar García-Alcober & Emili Tortosa-Ausina & Diego Prior & Manuel Illueca, 2014. "Cost and revenue efficiency in Spanish banking: What distributions show," Working Papers 2014/12, Economics Department, Universitat Jaume I, Castellón (Spain).
  5. Mark Andor & Frederik Hesse, . "The StoNED age: The Departure Into a New Era of Efficiency Analysis? An MC study Comparing StoNED and the "Oldies" (SFA and DEA)," Working Papers 201285, Institute of Spatial and Housing Economics, Munster Universitary.
  6. Meryem Duygun & Huseyin Ozturk & Mohamed Shaban & Emili Tortosa-Ausina, 2014. "Quo Vadis, raters? A frontier approach to identify misratings in sovereign credit risk," Working Papers 2014/10, Economics Department, Universitat Jaume I, Castellón (Spain).

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