On the choice of functional form in stochastic frontier modeling

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On the choice of functional form in stochastic frontier modeling

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Konstantinos Giannakas
Kien C. Tran
Vangelis Tzouvelekas

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Abstract

This paper examines the effect of functional form specification on the estimation of technical efficiency using a panel data set of 125 olive-growing farms in Greece for the period 1987–93. The generalized quadratic Box-Cox transformation is used to test the relative performance of alternative, widely used, functional forms and to examine the effect of prior choice on final efficiency estimates. Other than the functional specifications nested within the Box-Cox transformation, the comparative analysis includes the minflex Laurent translog and generalized Leontief that possess desirable approximation properties. The results indicate that technical efficiency measures are very sensitive to the choice of functional specification. Perhaps most importantly, the choice of functional form affects the identification of the factors affecting individual performance – the sources of technical inefficiency. The analysis also shows that while specification searches do narrow down the set of feasible alternatives, the identification of the most appropriate functional specification might not always be (statistically) feasible. Copyright Springer-Verlag Berlin Heidelberg 2003

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Article provided by Springer in its journal Empirical Economics.

Volume (Year): 28 (2003)
Issue (Month): 1 (January)
Pages: 75-100
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Handle: RePEc:spr:empeco:v:28:y:2003:i:1:p:75-100

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Sauer, J.F., 2005. "“Efficiency Flooding”: Black-Box Frontiers and Policy Implications," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 2(1), pages 17-52. [Downloadable!]
Kanybek Nur-tegin, 2007. "Do Transition Economies and Developing Countries Have Similar Destinies?," Atlantic Economic Journal, International Atlantic Economic Society, vol. 35(3), pages 327-342, September. [Downloadable!] (restricted)
Konstantinos Giannakas & Kien C. Tran & Vangelis Tzouvelekas, 2003. "Predicting technical effciency in stochastic production frontier models in the presence of misspecification: a Monte-Carlo analysis," Applied Economics, Taylor and Francis Journals, vol. 35(2), pages 153-161, January. [Downloadable!] (restricted)
Lambarraa, Fatima & Serra, Teresa & gil Roig, Jose Maria, 2006. "Technical efficiency analysis and decomposition of productivity growth of Spanish olive farms," 98th Seminar, June 29-July 2, 2006, Chania, Crete, Greece 10071, European Association of Agricultural Economists. [Downloadable!]
Morteza Haghiri & James F. Nolan & Kien C. Tran, 2004. "Assessing the impact of economic liberalization across countries: a comparison of dairy industry efficiency in Canada and the USA," Applied Economics, Taylor and Francis Journals, vol. 36(11), pages 1233-1243, June. [Downloadable!] (restricted)
Sanna-Mari Hynninen, 2009. "Matching in local labor markets: a stochastic frontier approach," Journal of Productivity Analysis, Springer, vol. 31(1), pages 15-26, February. [Downloadable!] (restricted)
Monchuk, Daniel C. & Zhuo, Chen, 2008. "Explaining Production Inefficiency in Chinaâs Agriculture using Data Envelope Analysis and Semi-Parametric Bootstrapping," 2008 Annual Meeting, July 27-29, 2008, Orlando, Florida 6456, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
Ariel Dinar & Giannis Karagiannis & Vangelis Tzouvelekas, . "Evaluating the Impact of Public and Private Agricultural Extension on Farms Performance: A Non-neutral Stochastic Frontier Approach," Working Papers 0205, University of Crete, Department of Economics. [Downloadable!]

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