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Estimation of semiparametric stochastic frontiers under shape constraints with application to pollution generating technologies

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Kortelainen, Mika

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Abstract

A number of studies have explored the semi- and nonparametric estimation of stochastic frontier models by using kernel regression or other nonparametric smoothing techniques. In contrast to popular deterministic nonparametric estimators, these approaches do not allow one to impose any shape constraints (or regularity conditions) on the frontier function. On the other hand, as many of the previous techniques are based on the nonparametric estimation of the frontier function, the convergence rate of frontier estimators can be sensitive to the number of inputs, which is generally known as “the curse of dimensionality” problem. This paper proposes a new semiparametric approach for stochastic frontier estimation that avoids the curse of dimensionality and allows one to impose shape constraints on the frontier function. Our approach is based on the singleindex model and applies both single-index estimation techniques and shape-constrained nonparametric least squares. In addition to production frontier and technical efficiency estimation, we show how the technique can be used to estimate pollution generating technologies. The new approach is illustrated by an empirical application to the environmental adjusted performance evaluation of U.S. coal-fired electric power plants.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 9257.

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Date of creation: 20 Jun 2008
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Handle: RePEc:pra:mprapa:9257

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Related research
Keywords: stochastic frontier analysis (SFA) nonparametric least squares single-index model sliced inverse regression monotone rank correlation estimator environmental efficiency

Find related papers by JEL classification:
C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
Q52 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Pollution Control Costs; Distributional Effects; Employment Effects
C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Semiparametric and Nonparametric Methods
D24 - Microeconomics - - Production and Organizations - - - Production; Capital and Total Factor Productivity; Capacity

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