Maximum Likelihood Estimation of Censored Stochastic Frontier Models: An Application to the Three-Stage DEA Method
AbstractThis paper takes issues with the appropriateness of applying the stochastic frontier analysis (SFA) technique to account for environmental effects and statistical noise in the popular three-stage data envelopment analysis (DEA). A correctly specified SFA model with a censored dependent variable and the associated maximum likelihood estimation (MLE) are proposed. The simulations show that the finite sample performance of the proposed MLE of the censored SFA model is very promising. An empirical example of farmers’ credit unions in Taiwan illustrates the comparison between the censored and standard SFA in accounting for environmental effects and statistical noise.
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Bibliographic InfoPaper provided by Institute of Economics, Academia Sinica, Taipei, Taiwan in its series IEAS Working Paper : academic research with number 09-A003.
Length: 27 pages
Date of creation: Mar 2009
Date of revision:
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Web page: http://www.econ.sinica.edu.tw/index.php?foreLang=en
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Three-stage data envelopment analysis; stochastic frontier analysis; censored stochastic frontier model;
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-12-19 (All new papers)
- NEP-ECM-2009-12-19 (Econometrics)
- NEP-EFF-2009-12-19 (Efficiency & Productivity)
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