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Misspecification in allocative inefficiency: A simulation study

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  • Kutlu, Levent

Abstract

We make an extensive simulation analysis in order to investigate the consequences of ignoring the potentially complex and data dependent effects of allocative inefficiency on the estimation of stochastic frontier panel data models. Generally system estimators perform worse than single equation estimators. This result holds even when we approximate the allocative inefficiency.

Suggested Citation

  • Kutlu, Levent, 2013. "Misspecification in allocative inefficiency: A simulation study," Economics Letters, Elsevier, vol. 118(1), pages 151-154.
  • Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:151-154
    DOI: 10.1016/j.econlet.2012.10.004
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    References listed on IDEAS

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    1. Park, Byeong U. & Sickles, Robin C. & Simar, Leopold, 2003. "Semiparametric-efficient estimation of AR(1) panel data models," Journal of Econometrics, Elsevier, vol. 117(2), pages 279-309, December.
    2. Park, Byeong U. & Sickles, Robin C. & Simar, Leopold, 2007. "Semiparametric efficient estimation of dynamic panel data models," Journal of Econometrics, Elsevier, vol. 136(1), pages 281-301, January.
    3. Kumbhakar, Subal C., 1997. "Modeling allocative inefficiency in a translog cost function and cost share equations: An exact relationship," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 351-356.
    4. Kutlu, Levent, 2010. "Battese-coelli estimator with endogenous regressors," Economics Letters, Elsevier, vol. 109(2), pages 79-81, November.
    5. Kumbhakar, Subal C. & Tsionas, Efthymios G., 2005. "Measuring technical and allocative inefficiency in the translog cost system: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 126(2), pages 355-384, June.
    6. 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.
    7. Kumbhakar, Subal C. & Wang, Hung-Jen, 2006. "Pitfalls in the estimation of a cost function that ignores allocative inefficiency: A Monte Carlo analysis," Journal of Econometrics, Elsevier, vol. 134(2), pages 317-340, October.
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    Citations

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    Cited by:

    1. Duygun, Meryem & Kutlu, Levent & Sickles, Robin C., 2014. "Measuring Productivity and Efficiency: A Kalman," Working Papers 15-010, Rice University, Department of Economics.
    2. Meryem Duygun & Levent Kutlu & Robin C. Sickles, 2016. "Measuring productivity and efficiency: a Kalman filter approach," Journal of Productivity Analysis, Springer, vol. 46(2), pages 155-167, December.

    More about this item

    Keywords

    Technical inefficiency; Allocative inefficiency; Stochastic frontier; Panel data;

    JEL classification:

    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

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