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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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Paper provided by Monash University, Department of Econometrics and Business Statistics in its series Monash Econometrics and Business Statistics Working Papers with number 3/10.

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Length: 56 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:msh:ebswps:2010-3

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

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