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On the Distributional Assumptions in the StoNED model

Author

Listed:
  • Cheng, Xiaomei

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Andersson, Jonas

    (Dept. of Business and Management Science, Norwegian School of Economics)

  • Bjørndal, Endre

    (Dept. of Business and Management Science, Norwegian School of Economics)

Abstract

In a recent paper Johnson and Kuosmanen (2011) propose a new, semi-parametric, general cost-frontier model, the stochastic nonparametric envelopment of data (StoNED). The model is semi-parametric in the sense that the cost function is estimated nonparametrically, while the functional form of the distribution for the error term is parametrically specified. A common assumption for this distribution is that it is a convolution of a truncated normal distribution, representing inefficiency, and a normal distribution, representing noise. This parametric form has the drawback that a negative skewness implies a negative expected inefficiency. It can thus never capture a negatively skewed distribution with a positive expectation. In this paper we investigate this assumption and its consequences for an analysis of inefficiency. Furthermore, we propose a solution to the problem and investigate its performance by means of a Monte Carlo simulation.

Suggested Citation

  • Cheng, Xiaomei & Andersson, Jonas & Bjørndal, Endre, 2015. "On the Distributional Assumptions in the StoNED model," Discussion Papers 2015/24, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2015_024
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    File URL: http://hdl.handle.net/11250/300521
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    References listed on IDEAS

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    More about this item

    Keywords

    StoNED model; Composite error; Wrong skewness; Misspecification;
    All these keywords.

    JEL classification:

    • C00 - Mathematical and Quantitative Methods - - General - - - General
    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • Q00 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General - - - General

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