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A Stochastic Frontier Model for Discrete Ordinal Outcomes: A Health Production Function

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  • William Griffiths
  • Xiaohui Zhang
  • Xueyan Zhao

Abstract

The stochastic frontier model used for continuous dependent variables is extended to accommodate output measured as a discrete ordinal outcome variable. Conditional on the inefficiency error, the assumptions of the ordered probit model are adopted for the log of output. Bayesian estimation utilizing a Gibbs sampler with data augmentation is applied to a convenient re-parameterisation of the model. Using panel data from an Australian longitudinal survey, demographic and socioeconomic characteristics are specified as inputs to health production, whereas production efficiency is made dependent on lifestyle factors. Posterior summary statistics are obtained for selected health status probabilities, efficiencies, and marginal effects.

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Bibliographic Info

Paper provided by The University of Melbourne in its series Department of Economics - Working Papers Series with number 1092.

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Length: 56 pages
Date of creation: 2010
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Handle: RePEc:mlb:wpaper:1092

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Keywords: Bayesian estimation; Gibbs sampling; ordered probit; production efficiency;

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