On the distribution of estimated technical efficiency in stochastic frontier models
AbstractWe consider a stochastic frontier model with error [epsilon]=v-u, where v is normal and u is half normal. We derive the distribution of the usual estimate of u,E(u[epsilon]). We show that as the variance of v approaches zero, E(u[epsilon])-u converges to zero, while as the variance of v approaches infinity, E(u[epsilon]) converges to E(u). We graph the density of E(u[epsilon]) for intermediate cases. To show that E(u[epsilon]) is a shrinkage of u towards its mean, we derive and graph the distribution of E(u[epsilon]) conditional on u. We also consider the distribution of estimated inefficiency in the fixed-effects panel data setting.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Econometrics.
Volume (Year): 148 (2009)
Issue (Month): 1 (January)
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Web page: http://www.elsevier.com/locate/jeconom
Stochastic frontier Technical inefficiency Estimated inefficiency;
Other versions of this item:
- Wei Siang Wang & Peter Schmidt, 2007. "On The Distribution of Estimated Technical Efficiency in Stochastic Frontier Models," CEPA Working Papers Series WP022007, School of Economics, University of Queensland, Australia.
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