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Practical illustrations of the two recent contributions to stochastic frontier models

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  • Yoshihiko Tsukuda
  • Tatsuyoshi Miyakoshi

Abstract

In a recent year, the conditional expectation for technical inefficiency (i.e., the predictor) in stochastic frontier production models and its confidence interval are proved to be increasing in the individual firm's inefficiency effect, which is defined as the mean of the normal distribution that is truncated at zero. This paper illustrates how the two recent contributions work in practice and how these findings are significant, by using the Battese and Coelli (1995) type specification and giving an empirical study on the Japanese pharmaceutical industry.

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  • Yoshihiko Tsukuda & Tatsuyoshi Miyakoshi, 2006. "Practical illustrations of the two recent contributions to stochastic frontier models," Applied Economics Letters, Taylor & Francis Journals, vol. 13(4), pages 229-233.
    • Handle: RePEc:taf:apeclt:v:13:y:2006:i:4:p:229-233
    DOI: 10.1080/13504850500393022
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    References listed on IDEAS

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    1. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
    2. Battese, George E. & Coelli, Tim J., 1988. "Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data," Journal of Econometrics, Elsevier, vol. 38(3), pages 387-399, July.
    3. Yoshihiko Tsukuda & Tatsuyoshi Miyakoshi, 2003. "An alternative method for predicting technical inefficiency in stochastic frontier models," Applied Economics Letters, Taylor & Francis Journals, vol. 10(11), pages 667-670.
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