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A panel frontier system model with good and bad outputs and endogenous treatment decision

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  • Lai, Hung-pin
  • Kumbhakar, Subal C.

Abstract

In this paper we consider a simultaneous panel stochastic frontier system for the production of good and bad outputs when inefficiency is present in both. In addition, we consider treatment of bad output when the treatment decision is endogenous. Inclusion of a treatment decision is important because treatment affects production of bad output which, in turn, affects production of good output. Because of simultaneity, inefficiency from the production of good (bad) output is transmitted to the production of bad (good) output. We derive the likelihood function and formulas for predicting inefficiency (efficiency) for both good and bad outputs as well as overall inefficiency.

Suggested Citation

  • Lai, Hung-pin & Kumbhakar, Subal C., 2021. "A panel frontier system model with good and bad outputs and endogenous treatment decision," Economics Letters, Elsevier, vol. 198(C).
    • Handle: RePEc:eee:ecolet:v:198:y:2021:i:c:s0165176520304092
    DOI: 10.1016/j.econlet.2020.109649
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    References listed on IDEAS

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    1. Sushama Murty & R. Robert Russell, 2018. "Modeling emission-generating technologies: reconciliation of axiomatic and by-production approaches," Empirical Economics, Springer, vol. 54(1), pages 7-30, February.
    2. Lai, Hung-pin & Kumbhakar, Subal C., 2018. "Panel data stochastic frontier model with determinants of persistent and transient inefficiency," European Journal of Operational Research, Elsevier, vol. 271(2), pages 746-755.
    3. Murty, Sushama & Robert Russell, R. & Levkoff, Steven B., 2012. "On modeling pollution-generating technologies," Journal of Environmental Economics and Management, Elsevier, vol. 64(1), pages 117-135.
    4. Kumbhakar, Subal C. & Tsionas, Efthymios G., 2016. "The good, the bad and the technology: Endogeneity in environmental production models," Journal of Econometrics, Elsevier, vol. 190(2), pages 315-327.
    5. Lai, Hung-pin & Kumbhakar, Subal C., 2018. "Endogeneity in panel data stochastic frontier model with determinants of persistent and transient inefficiency," Economics Letters, Elsevier, vol. 162(C), pages 5-9.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Simultaneity; Good and bad outputs; Inefficiency; Treatment; Closed skew normal distribution;
    All these keywords.

    JEL classification:

    • C30 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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