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Estimation of a panel data model with parametric temporal variation in individual effects

  • Han, Chirok
  • Orea, Luis
  • Schmidt, Peter

This paper is an extension of Ahn, Lee and Schmidt (2001) to allow a parametric function for time-varying coefficients on the individual effects. It is shown that the main results of Ahn, Lee and Schmidt (2001) hold for our model too. Least squares is consistent, given white noise errors, but less efficient than a GMM estimator. An application of the GMM estimators to the measurement of cost efficiency of Spanish banks is also included. The empirical study shows the consequences of increasing the number of assumptions made regarding the error term. The GMM estimates, especially for private banks, cast doubt on the normality assumption supporting the traditional MLE frontier models.

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Article provided by Elsevier in its journal Journal of Econometrics.

Volume (Year): 126 (2005)
Issue (Month): 2 (June)
Pages: 241-267

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Handle: RePEc:eee:econom:v:126:y:2005:i:2:p:241-267
Contact details of provider: Web page: http://www.elsevier.com/locate/jeconom

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  1. Chamberlain, Gary, 1992. "Efficiency Bounds for Semiparametric Regression," Econometrica, Econometric Society, vol. 60(3), pages 567-96, May.
  2. Koop, G. & Osiewalski, J. & Steel, M. F. J., . "Bayesian efficiency analysis through individual effects: Hospital cost frontiers," CORE Discussion Papers RP 1245, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Han, Chirok & Orea, Luis & Schmidt, Peter, 2005. "Estimation of a panel data model with parametric temporal variation in individual effects," Journal of Econometrics, Elsevier, vol. 126(2), pages 241-267, June.
  4. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1989. "Production Frontiers With Cross-Sectinal And Time-Series Variation In Efficiency Levels," Working Papers 89-18, C.V. Starr Center for Applied Economics, New York University.
  5. Holtz-Eakin, Douglas & Newey, Whitney & Rosen, Harvey S, 1988. "Estimating Vector Autoregressions with Panel Data," Econometrica, Econometric Society, vol. 56(6), pages 1371-95, November.
  6. Sealey, Calvin W, Jr & Lindley, James T, 1977. "Inputs, Outputs, and a Theory of Production and Cost at Depository Financial Institutions," Journal of Finance, American Finance Association, vol. 32(4), pages 1251-66, September.
  7. Gary Chamberlain, 1980. "Analysis of Covariance with Qualitative Data," Review of Economic Studies, Oxford University Press, vol. 47(1), pages 225-238.
  8. Kumbhakar, Subal C., 1990. "Production frontiers, panel data, and time-varying technical inefficiency," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 201-211.
  9. Cuesta, Rafael A. & Orea, Luis, 2002. "Mergers and technical efficiency in Spanish savings banks: A stochastic distance function approach," Journal of Banking & Finance, Elsevier, vol. 26(12), pages 2231-2247.
  10. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-54, July.
  11. Jushan Bai, 2003. "Inferential Theory for Factor Models of Large Dimensions," Econometrica, Econometric Society, vol. 71(1), pages 135-171, January.
  12. Ahn, Seung Chan & Hoon Lee, Young & Schmidt, Peter, 2001. "GMM estimation of linear panel data models with time-varying individual effects," Journal of Econometrics, Elsevier, vol. 101(2), pages 219-255, April.
  13. 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.
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