Bayesian estimation of inefficiency heterogeneity in stochastic frontier models
AbstractEstimation of the one sided error component in stochastic frontier models may erroneously attribute firm characteristics to inefficiency if heterogeneity is unaccounted for. However, it is not clear in general in which component of the error distribution the covariates should be included. In the classical context, some studies include covariates in the scale parameter of the inefficiency with the property of preserving the shape of its distribution. We extend this idea to Bayesian inference for stochastic frontier models capturing both observed and unobserved heterogeneity under half normal, truncated and exponential distributed inefficiencies. We use the WinBugs package to implement our approach throughout. Our findings using two real data sets, illustrate the relevant effects on shrinking and separating individual posterior efficiencies when heterogeneity affects the scale of the inefficiency. We also see that the inclusion of unobserved heterogeneity is still relevant when no observable covariates are available.
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Bibliographic InfoPaper provided by Universidad Carlos III, Departamento de Estadística y Econometría in its series Statistics and Econometrics Working Papers with number ws121007.
Date of creation: May 2012
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Stochastic Frontier Models; Heterogeneity; Bayesian Inference;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-ECM-2012-05-29 (Econometrics)
- NEP-EFF-2012-05-29 (Efficiency & Productivity)
- NEP-ORE-2012-05-29 (Operations Research)
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- Jorge E. Galán & Helena Veiga & Michael P. Wiper, 2013. "Bayesian analysis of dynamic effects in inefficiency : evidence from the Colombian banking sector," Statistics and Econometrics Working Papers ws131918, Universidad Carlos III, Departamento de Estadística y Econometría.
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