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Endogeneity in panel data stochastic frontier model with determinants of persistent and transient inefficiency

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  • Lai, Hung-pin
  • Kumbhakar, Subal C.

Abstract

In this paper we consider a stochastic frontier panel data model in which the random firm-effects are introduced along with the persistent and transient technical inefficiency. Moreover, we allow determinants of both persistent and transient inefficiency, and allow both firm-effects and persistent inefficiency to be correlated with the regressors. We discuss a two-step procedure, which applies the MLE and the system NLS approach, to estimate parameters of the model and prediction of persistent and transient technical efficiency. Finally, we demonstrate our approach by applying it to the U.S. power generating plant data.

Suggested Citation

  • Lai, Hung-pin & Kumbhakar, Subal C., 2018. "Endogeneity in panel data stochastic frontier model with determinants of persistent and transient inefficiency," Economics Letters, Elsevier, vol. 162(C), pages 5-9.
    • Handle: RePEc:eee:ecolet:v:162:y:2018:i:c:p:5-9
    DOI: 10.1016/j.econlet.2017.10.003
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    References listed on IDEAS

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    1. Roberto Colombi & Subal Kumbhakar & Gianmaria Martini & Giorgio Vittadini, 2014. "Closed-skew normality in stochastic frontiers with individual effects and long/short-run efficiency," Journal of Productivity Analysis, Springer, vol. 42(2), pages 123-136, October.
    2. Massimo Filippini & William Greene, 2016. "Persistent and transient productive inefficiency: a maximum simulated likelihood approach," Journal of Productivity Analysis, Springer, vol. 45(2), pages 187-196, April.
    3. Wang, Hung-Jen & Ho, Chia-Wen, 2010. "Estimating fixed-effect panel stochastic frontier models by model transformation," Journal of Econometrics, Elsevier, vol. 157(2), pages 286-296, August.
    4. Efthymios G. Tsionas & Subal C. Kumbhakar, 2014. "FIRM HETEROGENEITY, PERSISTENT AND TRANSIENT TECHNICAL INEFFICIENCY: A GENERALIZED TRUE RANDOM‐EFFECTS model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 29(1), pages 110-132, January.
    5. Subal Kumbhakar & Gudbrand Lien & J. Hardaker, 2014. "Technical efficiency in competing panel data models: a study of Norwegian grain farming," Journal of Productivity Analysis, Springer, vol. 41(2), pages 321-337, April.
    6. Chen, Yi-Yi & Schmidt, Peter & Wang, Hung-Jen, 2014. "Consistent estimation of the fixed effects stochastic frontier model," Journal of Econometrics, Elsevier, vol. 181(2), pages 65-76.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Endogeneity; Stochastic frontier; Persistent technical inefficiency; Transient technical inefficiency; Closed skew-normal distribution;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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