Estimation of Inefficiency using a Firm-specific Frontier Model
AbstractIt has been argued that the deterministic frontier approach in inefficiency measurement has a major limitation as inefficiency is mixed with measurement error (statistical noise) in this approach. The result is that inefficiency is contaminated with noise. Later stochastic frontier approach improves the situation with allowing a statistical noise in the model which captures all other factors other than inefficiency. The stochastic frontier model has been used for inefficiency analysis despite its complicated form and estimation procedure. This paper introduced an extra parameter which estimates the amount of proportion that an error component shares in the observational error. An EM estimation approach is used for estimation of the model and a test procedure is developed to test the significance of presence of the error component in the observational error.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 46168.
Date of creation: 13 Apr 2013
Date of revision:
stochastic frontier model; skew-normal distribution; identification; EM algorithm; Monte Carlo simulation.;
Find related papers by JEL classification:
- C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
- C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
- C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-04-20 (All new papers)
- NEP-ECM-2013-04-20 (Econometrics)
- NEP-EFF-2013-04-20 (Efficiency & Productivity)
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