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Blaming the exogenous environment? Conditional efficiency estimation with continuous and discrete exogenous variables

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Author Info
De Witte, Kristof
Mika, Kortelainen

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Abstract

This paper proposes a fully nonparametric framework to estimate relative efficiency of entities while accounting for a mixed set of continuous and discrete (both ordered and unordered) exogenous variables. Using robust partial frontier techniques, the probabilistic and conditional characterization of the production process, as well as insights from the recent developments in nonparametric econometrics, we present a generalized approach for conditional efficiency measurement. To do so, we utilize a tailored mixed kernel function with a data-driven bandwidth selection. So far only descriptive analysis for studying the effect of heterogeneity in conditional efficiency estimation has been suggested. We show how to use and interpret nonparametric bootstrap-based significance tests in a generalized conditional efficiency framework. This allows us to study statistical significance of continuous and discrete exogenous variables on production process. The proposed approach is illustrated using simulated examples as well as a sample of British pupils from the OECD Pisa data set. The results of the empirical application show that several exogenous discrete factors have a statistically significant effect on the educational process.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14034.

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Date of creation: 04 Mar 2009
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Handle: RePEc:pra:mprapa:14034

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Related research
Keywords: Nonparametric estimation; Conditional efficiency measures; Exogenous factors; Generalized kernel function; Education;

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Find related papers by JEL classification:
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
I21 - Health, Education, and Welfare - - Education - - - Analysis of Education
C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models

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  1. Catherine Cazals & Paul Dudley & Jean-Pierre Florens & Shital Patel & Frank Rodriguez, 2008. "Delivery Offices Cost Frontier: A Robust Non Parametric Approach with Exogenous Variables," Review of Network Economics, Concept Economics, vol. 7(2), pages 294-308, June. [Downloadable!]
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  2. Bound, John & Brown, Charles & Mathiowetz, Nancy, 2001. "Measurement error in survey data," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 59, pages 3705-3843 Elsevier. [Downloadable!] (restricted)
  3. Tom Broekel, 2008. "From Average to the Frontier: A Nonparametric Performance Approach for Analyzing Externalities and Regions’ Innovativeness," Papers in Evolutionary Economic Geography (PEEG) 0804, Utrecht University, Section of Economic Geography, revised May 2008. [Downloadable!]
  4. Cazals, Catherine & Florens, Jean-Pierre & Simar, Leopold, 2002. "Nonparametric frontier estimation: a robust approach," Journal of Econometrics, Elsevier, vol. 106(1), pages 1-25, January. [Downloadable!] (restricted)
  5. Tom Broekel & Andreas Meder, 2008. "The Bright and Dark Side of Cooperation for Regional Innovation Performance," Jena Economic Research Papers in Economics 2008-053, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics, Thueringer Universitaets- und Landesbibliothek. [Downloadable!]
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  6. Roberta Blass Staub & Geraldo da Silva e Souza, 2007. "A Probabilistic Approach for Assessing the Significance of Contextual Variables in Nonparametric Frontier Models: an Application for Brazilian Banks," Working Papers Series 150, Central Bank of Brazil, Research Department. [Downloadable!]
  7. Peter Hall & Jeff Racine & Qi Li, 2004. "Cross-Validation and the Estimation of Conditional Probability Densities," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 1015-1026, December. [Downloadable!] (restricted)
  8. Racine, Jeff & Li, Qi, 2004. "Nonparametric estimation of regression functions with both categorical and continuous data," Journal of Econometrics, Elsevier, vol. 119(1), pages 99-130, March. [Downloadable!] (restricted)
  9. Luiza Badin & Cinzia Daraio & Léopold Simar, 2008. "Optimal Bandwidth Selection for Conditional Efficiency Measures: a Data-driven Approach," LEM Papers Series 2008/22, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy. [Downloadable!]
  10. Laurens Cherchye & Kristof De Witte & Erwin Ooghe, 2007. "Equity and efficiency in private and public education: a nonparametric comparison," Center for Economic Studies - Discussion papers ces0725, Katholieke Universiteit Leuven, Centrum voor Economische Studiën. [Downloadable!]
  11. Cinzia Daraio & Léopold Simar, 2005. "Introducing Environmental Variables in Nonparametric Frontier Models: a Probabilistic Approach," Journal of Productivity Analysis, Springer, vol. 24(1), pages 93-121, 09. [Downloadable!] (restricted)
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  12. Bonaccorsi, Andrea & Daraio, Cinzia & Räty, Tarmo & Simar, Léopold, 2007. "Efficiency and University Size: Discipline-wise Evidence from European Universities," MPRA Paper 10265, University Library of Munich, Germany. [Downloadable!]
  13. Daraio, Cinzia & Simar, Leopold, 2006. "A robust nonparametric approach to evaluate and explain the performance of mutual funds," European Journal of Operational Research, Elsevier, vol. 175(1), pages 516-542, November. [Downloadable!] (restricted)
  14. Racine, Jeff, 1997. "Consistent Significance Testing for Nonparametric Regression," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 369-78, July.
  15. Emmanuel Thanassoulis & Maria Da Conceição A. Silva Portela, 2002. "School Outcomes: Sharing the Responsibility Between Pupil and School1," Education Economics, Taylor and Francis Journals, vol. 10(2), pages 183-207, August. [Downloadable!] (restricted)
  16. Li, Qi & Racine, Jeffrey S, 2008. "Nonparametric Estimation of Conditional CDF and Quantile Functions With Mixed Categorical and Continuous Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 423-434. [Downloadable!] (restricted)
  17. Daouia, Abdelaati & Simar, Leopold, 2007. "Nonparametric efficiency analysis: A multivariate conditional quantile approach," Journal of Econometrics, Elsevier, vol. 140(2), pages 375-400, October. [Downloadable!] (restricted)
  18. Cinzia Daraio & Léopold Simar, 2007. "Conditional nonparametric frontier models for convex and nonconvex technologies: a unifying approach," Journal of Productivity Analysis, Springer, vol. 28(1), pages 13-32, October. [Downloadable!] (restricted)
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