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Semiparametric Bayesian inference for stochastic frontier models

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  • Griffin, J. E.
  • Steel, M. F. J.

Abstract

In this paper we propose a semiparametric Bayesian framework for the analysis of stochastic frontiers and efficiency measurement. The distribution of inefficiencies is modelled nonparametrically through a Dirichlet process prior. We suggest prior distributions and implement a Bayesian analysis through an efficient Markov chain Monte Carlo sampler, which allows us to deal with practically relevant sample sizes. We also allow for the efficiency distribution to vary with firm characteristics. The methodology is applied to a cost frontier, estimated from a panel data set on 382 U.S. hospitals.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 123 (2004)
Issue (Month): 1 (November)
Pages: 121-152

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Handle: RePEc:eee:econom:v:123:y:2004:i:1:p:121-152

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Web page: http://www.elsevier.com/locate/jeconom

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  1. Cinzia Carota, 2002. "Semiparametric regression for count data," Biometrika, Biometrika Trust, vol. 89(2), pages 265-281, June.
  2. Koop, Gary & Osiewalski, Jacek & Steel, Mark F. J., 1997. "Bayesian efficiency analysis through individual effects: Hospital cost frontiers," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 77-105.
  3. Chib, Siddhartha & Hamilton, Barton H., 2002. "Semiparametric Bayes analysis of longitudinal data treatment models," Journal of Econometrics, Elsevier, vol. 110(1), pages 67-89, September.
  4. Fan, Yanqin & Li, Qi & Weersink, Alfons, 1996. "Semiparametric Estimation of Stochastic Production Frontier Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 14(4), pages 460-68, October.
  5. Kumbhakar, Subal C., 1990. "Production frontiers, panel data, and time-varying technical inefficiency," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 201-211.
  6. Fernandez, Carmen & Osiewalski, Jacek & Steel, Mark F. J., 1997. "On the use of panel data in stochastic frontier models with improper priors," Journal of Econometrics, Elsevier, vol. 79(1), pages 169-193, July.
  7. van den Broeck, Julien & Koop, Gary & Osiewalski, Jacek & Steel, Mark F. J., 1994. "Stochastic frontier models : A Bayesian perspective," Journal of Econometrics, Elsevier, vol. 61(2), pages 273-303, April.
  8. Greene, William H., 1990. "A Gamma-distributed stochastic frontier model," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 141-163.
  9. Efthymios Tsionas, 2000. "Full Likelihood Inference in Normal-Gamma Stochastic Frontier Models," Journal of Productivity Analysis, Springer, vol. 13(3), pages 183-205, May.
  10. Carmen Fernández & Eduardo Ley & Mark F. J. Steel, . "Benchmark priors for Bayesian Model averaging," Working Papers 98-06, FEDEA.
  11. Ishwaran H. & James L. F, 2001. "Gibbs Sampling Methods for Stick Breaking Priors," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 161-173, March.
  12. Gary Koop & Dale J. Poirer, 2004. "Bayesian Variants of Some classical Semiparametric Regression Techniques," ESE Discussion Papers 73, Edinburgh School of Economics, University of Edinburgh.
  13. PARK, Byeong & SIMAR, Léopold, 1992. "Efficient semiparametric estimation in stochastic frontier model," CORE Discussion Papers 1992013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  14. PARK, Beyong U. & SICKLES, Robin C. & SIMAR, Léopold, . "Stochastic panel frontiers: A semiparametric approach," CORE Discussion Papers RP -1330, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  15. Ritter, C. & Simar, L., . "Pitfalls of normal-gamma stochastic frontier models," CORE Discussion Papers RP -1272, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  16. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
  17. Keisuke Hirano, 2002. "Semiparametric Bayesian Inference in Autoregressive Panel Data Models," Econometrica, Econometric Society, vol. 70(2), pages 781-799, March.
  18. Adams, Robert M & Berger, Allen N & Sickles, Robin C, 1999. "Semiparametric Approaches to Stochastic Panel Frontiers with Applications in the Banking Industry," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 349-58, July.
  19. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June.
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