Alternative Technical Efficiency Measures: Skew, Bias, and Scale
AbstractIn the fixed-effects stochastic frontier model an efficiency measure relative to the best firm in the sample is universally employed. This paper considers a new measure relative to the worst firm in the sample. We find that estimates of this measure have smaller bias than those of the traditional measure when the sample consists of many firms near the efficient frontier. Moreover, a two-sided measure relative to both the best and the worst firms is proposed. Simulations suggest that the new measures may be preferred depending on the skewness of the inefficiency distribution and the scale of efficiency differences.
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Bibliographic InfoPaper provided by Center for Policy Research, Maxwell School, Syracuse University in its series Center for Policy Research Working Papers with number 121.
Length: 30 pages
Date of creation: Mar 2010
Date of revision:
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More information through EDIRC
stochastic frontier model; relative efficiency measure; two-sided measure; bias; bootstrap confidence intervals;
Other versions of this item:
- Qu Feng & William C. Horrace, 2012. "Alternative technical efficiency measures: Skew, bias and scale," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 27(2), pages 253-268, 03.
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-05-02 (All new papers)
- NEP-EFF-2010-05-02 (Efficiency & Productivity)
- NEP-SEA-2010-05-02 (South East Asia)
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