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Copula-based Stochastic Frontier Model with Autocorrelated Inefficiency

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  • Arabinda Das

    (Acharya Prafulla Chandra College)

Abstract

The paper considers the modeling and estimation of the stochastic frontier model where the error components are assumed to be correlated and the inefficiency error is assumed to be autocorrelated. The multivariate Farlie-Gumble-Morgenstern (FGM) and normal copula are used to capture both the contemporaneous and the temporal dependence between, and among, the noise and the inefficiency components. The intractable multiple integrals that appear in the likelihood function of the model are evaluated using the Halton sequence based Monte Carlo (MC) simulation technique. The consistency and the asymptotic efficiency of the resulting simulated maximum likelihood (SML) estimators of the present model parameters are established. Finally, the application of model using the SML method to the real life US airline data shows significant noise-inefficiency dependence and temporal dependence of inefficiency.

Suggested Citation

  • Arabinda Das, 2015. "Copula-based Stochastic Frontier Model with Autocorrelated Inefficiency," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 7(2), pages 111-126, June.
    • Handle: RePEc:psc:journl:v:7:y:2015:i:2:p:111-126
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    References listed on IDEAS

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    Cited by:

    1. Christine Amsler & Peter Schmidt & Wen-Jen Tsay, 2019. "Evaluating the CDF of the distribution of the stochastic frontier composed error," Journal of Productivity Analysis, Springer, vol. 52(1), pages 29-35, December.
    2. Arisara Romyen & Chonrada Nunti & Paramin Neranon, 2023. "Trade efficiency under FTA for Thailand’s agricultural exports: copula-based gravity stochastic frontier model," Journal of Economic Structures, Springer;Pan-Pacific Association of Input-Output Studies (PAPAIOS), vol. 12(1), pages 1-17, December.
    3. Arabinda Das, 2021. "Copula-based Stochastic Cost Frontier with Correlated Technical and Allocative Inefficiency," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 19(2), pages 207-222, June.
    4. Jerzy Marzec & Andrzej Pisulewski, 2017. "The Effect of CAP Subsidies on the Technical Efficiency of Polish Dairy Farms," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 9(3), pages 243-273, September.

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    More about this item

    Keywords

    stochastic frontier model; copula function; simulated maximum likelihood; Monte Carlo simulation;
    All these keywords.

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation

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