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A Dynamic Stochastic Frontier Production Model with Time-Varying Efficiency

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Author Info
Evangelia Desli (Lloyds of London)
Subhash C. Ray (University of Connecticut)
Subal C. Kumbhakar (SUNY Binghampton)

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Abstract

In this paper we introduce technical efficiency via the intercept that evolve over time as a AR(1) process in a stochastic frontier (SF) framework in a panel data framework. Following are the distinguishing features of the model. First, the model is dynamic in nature. Second, it can separate technical inefficiency from fixed firm-specific effects which are not part of inefficiency. Third, the model allows one to estimate technical change separate from change in technical efficiency. We propose the ML method to estimate the parameters of the model. Finally, we derive expressions to calculate/predict technical inefficiency (efficiency).

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2003-15.

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Length: 11 pages
Date of creation: Sep 2002
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Handle: RePEc:uct:uconnp:2003-15

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C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August. [Downloadable!] (restricted)
  2. Kumbhakar, Subal C., 1987. "The specification of technical and allocative inefficiency in stochastic production and profit frontiers," Journal of Econometrics, Elsevier, vol. 34(3), pages 335-348, March. [Downloadable!] (restricted)
  3. Kumbhakar, Subal C., 1990. "Production frontiers, panel data, and time-varying technical inefficiency," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 201-211. [Downloadable!] (restricted)
  4. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-44, June. [Downloadable!] (restricted)
  5. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July. [Downloadable!] (restricted)
  6. Battese, George E. & Coelli, Tim J., 1988. "Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data," Journal of Econometrics, Elsevier, vol. 38(3), pages 387-399, July. [Downloadable!] (restricted)
  7. Cooley, Thomas F & Prescott, Edward C, 1973. "An Adaptive Regression Model," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 14(2), pages 364-71, June. [Downloadable!] (restricted)
  8. Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August. [Downloadable!] (restricted)
  9. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-74, October.
  10. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Shaik, Saleem & Allen, Albert J. & Myles, Albert E. & Yeboah, Osei-Agyeman, 2008. "Importance of Financial Variables on Efficiency of Class I Railroads in the United States," 2008 Annual Meeting, February 2-6, 2008, Dallas, Texas 6874, Southern Agricultural Economics Association. [Downloadable!]
  2. David I. Stern, 2004. "Diffusion of Emissions Abating Technology," Rensselaer Working Papers in Economics 0420, Rensselaer Polytechnic Institute, Department of Economics. [Downloadable!]
  3. Sauer, Johannes & Graversen, Jesper & Park, Tim, 2006. "Breathtaking or Stagnating? - Productivity, Technical Change and Structural Dynamics in Danish Organic Farming," 2006 Annual meeting, July 23-26, Long Beach, CA 21481, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association). [Downloadable!]
  4. Weaver, Robert D. & Curtiss, Jarmila & Brummer, Bernhard, 2005. "Technical Efficiency Effects of Technological Change: Another Perspective on GM Crops," 2005 International Congress, August 23-27, 2005, Copenhagen, Denmark 24528, European Association of Agricultural Economists. [Downloadable!]
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