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Heteroscedasticity and Non-Monotonic Efficiency Effects of a Stochastic Frontier Model

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  • Hung-Jen Wang

Abstract

We consider a model that provides flexible parameterizations of the exogenous influences on inefficiency. In particular, we demonstrate the model's unique property of accommodating non-monotonic efficiency effect. With this non-monotonicity, production efficiency no longer increases or decreases monotonically with the exogenous influence; instead, the relationship can shifts within the sample. Our empirical example shows that variables can indeed have non-monotonic effects on efficiency. Furthermore, ignoring non-monotonicity is shown to yield an inferior estimation of the model, which sometimes results in opposite predictions concerning the data. Copyright Kluwer Academic Publishers 2002

Suggested Citation

  • Hung-Jen Wang, 2002. "Heteroscedasticity and Non-Monotonic Efficiency Effects of a Stochastic Frontier Model," Journal of Productivity Analysis, Springer, vol. 18(3), pages 241-253, November.
    • Handle: RePEc:kap:jproda:v:18:y:2002:i:3:p:241-253
    DOI: 10.1023/A:1020638827640
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    1. Kumbhakar, Subal C & Ghosh, Soumendra & McGuckin, J Thomas, 1991. "A Generalized Production Frontier Approach for Estimating Determinants of Inefficiency in U.S. Dairy Farms," Journal of Business & Economic Statistics, American Statistical Association, vol. 9(3), pages 279-286, July.
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    3. Hung-jen Wang & Peter Schmidt, 2002. "One-Step and Two-Step Estimation of the Effects of Exogenous Variables on Technical Efficiency Levels," Journal of Productivity Analysis, Springer, vol. 18(2), pages 129-144, September.
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    6. Hadri, Kaddour, 1999. "Estimation of a Doubly Heteroscedastic Stochastic Frontier Cost Function," Journal of Business & Economic Statistics, American Statistical Association, vol. 17(3), pages 359-363, July.
    7. Meeusen, Wim & van den Broeck, J, 1977. "Technical Efficiency and Dimension of the Firm: Some Results on the Use of Frontier Production Functions," Empirical Economics, Springer, vol. 2(2), pages 109-122.
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    More about this item

    Keywords

    stochastic frontiers; heteroscedasticity; non-monotonic effects;
    All these keywords.

    JEL classification:

    • C16 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Econometric and Statistical Methods; Specific Distributions
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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