A Stochastic Frontier Model with short-run and long-run inefficiency random effects
AbstractThis paper presents a new stochastic frontier model for panel data. The model takes into account firm unobservable heterogeneity and short-run and long-run sources of inefficiency. Each of these features is modeled by a specific random effect. In this way, firms’ latent heterogeneity is not wrongly modeled as inefficiency, and it is possible to disentangle a time-persistent component from the total inefficiency. Under reasonable assumptions, we show that the closed-skew normal distribution allows us to derive both the log-likelihood function of the model and the posterior expected values of the random effects. The new model is compared with nested models by analyzing the efficiency of firms belonging to different sectors.
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Bibliographic InfoPaper provided by Department of Economics and Technology Management, University of Bergamo in its series Working Papers with number 1101.
Date of creation: 2011
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Closed-Skew Normal Distribution; Longitudinal Data Analysis; Mixed Models; Stochastic Frontiers;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-04-09 (All new papers)
- NEP-ECM-2011-04-09 (Econometrics)
- NEP-EFF-2011-04-09 (Efficiency & Productivity)
- NEP-MIC-2011-04-09 (Microeconomics)
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