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Pitfalls in the estimation of a cost function that ignores allocative inefficiency: A Monte Carlo analysis

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  • Kumbhakar, Subal C.
  • Wang, Hung-Jen

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  • 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.
    • Handle: RePEc:eee:econom:v:134:y:2006:i:2:p:317-340
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    1. Schmidt, Peter & Lovell, C. A. Knox, 1980. "Estimating stochastic production and cost frontiers when technical and allocative inefficiency are correlated," Journal of Econometrics, Elsevier, vol. 13(1), pages 83-100, May.
    2. Tim Coelli & Antonio Estache & Sergio Perelman & Lourdes Trujillo, 2003. "A Primer on Efficiency Measurement for Utilities and Transport Regulators," World Bank Publications - Books, The World Bank Group, number 15149.
    3. Meeusen, Wim & van den Broeck, J, 1977. "Technical Efficiency and Dimension of the Firm: Some Results on the Use of Frontier Production Functions," Empirical Economics, Springer, vol. 2(2), pages 109-122.
    4. 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.
    5. Schmidt, Peter & Knox Lovell, C. A., 1979. "Estimating technical and allocative inefficiency relative to stochastic production and cost frontiers," Journal of Econometrics, Elsevier, vol. 9(3), pages 343-366, February.
    6. Hung-jen Wang & Peter Schmidt, 2002. "One-Step and Two-Step Estimation of the Effects of Exogenous Variables on Technical Efficiency Levels," Journal of Productivity Analysis, Springer, vol. 18(2), pages 129-144, September.
    7. Olson, Jerome A. & Schmidt, Peter & Waldman, Donald M., 1980. "A Monte Carlo study of estimators of stochastic frontier production functions," Journal of Econometrics, Elsevier, vol. 13(1), pages 67-82, May.
    8. 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.
    9. 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.
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    Cited by:

    1. Jean-Philippe Boussemart & Herv頌eleu & Vivian Valdmanis, 2015. "A two-stage translog marginal cost pricing approach for Floridian hospital outputs," Applied Economics, Taylor & Francis Journals, vol. 47(38), pages 4116-4127, August.
    2. Martin, Juan Carlos & Voltes-Dorta, Augusto, 2007. "Marginal Cost Estimations In Airports. Multiproductive Cost Functions And Stochastic Frontiers: An International Airports Case Study," 48th Annual Transportation Research Forum, Boston, Massachusetts, March 15-17, 2007 207931, Transportation Research Forum.
    3. Abhiman Das & Subal C. Kumbhakar, 2016. "Markup and efficiency of Indian banks: an input distance function approach," Empirical Economics, Springer, vol. 51(4), pages 1689-1719, December.
    4. Roberto Mosheim, 2013. "A shadow distance function decomposition of the environmental Kuznets curve: comparing the South China Sea and the Caribbean," Journal of Productivity Analysis, Springer, vol. 40(3), pages 457-472, December.
    5. Tung Liu, 2020. "Measuring Technical, Allocative inefficiency, and Cost Inefficiency by Applying Duality Theory," Working Papers 202001, Ball State University, Department of Economics, revised Jun 2020.
    6. Badunenko, Oleg & Fritsch, Michael & Stephan, Andreas, 2008. "Allocative efficiency measurement revisited--Do we really need input prices?," Economic Modelling, Elsevier, vol. 25(5), pages 1093-1109, September.
    7. Liu, Tung, 2021. "Measuring cost inefficiency: A dual approach," Economic Modelling, Elsevier, vol. 99(C).
    8. Ben Amor, Tawfik & Mellah, Thuraya, 2023. "Cost efficiency of Tunisian water utility districts: Does heterogeneity matter?," Utilities Policy, Elsevier, vol. 84(C).
    9. Gabriel Asaftei & Subal Kumbhakar, 2008. "Regulation and efficiency in transition: the case of Romanian banks," Journal of Regulatory Economics, Springer, vol. 33(3), pages 253-282, June.
    10. Obeng, K. & Sakano, R., 2020. "Effects of government regulations and input subsidies on cost efficiency: A decomposition approach," Transport Policy, Elsevier, vol. 91(C), pages 95-107.
    11. Hongjun, Guan & Liye, Dong & Aiwu, Zhao, 2023. "Energy structure dividend, factor allocation efficiency and regional productivity growth-- An empirical examination of energy restructuring in China," Energy Policy, Elsevier, vol. 172(C).
    12. Nyangweso, P.M. & Odhiambo, Mark O. & Odunga & Serem, A.K, 2008. "Household Food Security in a Subsistence Economy: Application of Translog Cost Function to Cross-sectional data in Vihiga District, Kenya," 2007 Second International Conference, August 20-22, 2007, Accra, Ghana 52216, African Association of Agricultural Economists (AAAE).
    13. Tsui‐Yueh Cho, 2020. "Cost metafrontier approach for measuring the Malmquist productivity index: An example of bank groups formed after the financial reform in Taiwan," Pacific Economic Review, Wiley Blackwell, vol. 25(4), pages 475-494, October.
    14. Tommy Lundgren & Mattias Vesterberg, 2024. "Efficiency in electricity distribution in Sweden and the effects of small-scale generation, electric vehicles and dynamic tariffs," Journal of Productivity Analysis, Springer, vol. 62(2), pages 121-137, October.
    15. Atkinson, Scott E. & Dorfman, Jeffrey H., 2006. "Chasing Absolute Cost and Profit Savings in a World of Relative Inefficiency," 2006 Annual meeting, July 23-26, Long Beach, CA 21058, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    16. Kutlu, Levent & McCarthy, Patrick, 2016. "US airport ownership, efficiency, and heterogeneity," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 89(C), pages 117-132.
    17. Tsionas, Efthymios & Kumbhakar, Subal, 2006. "Estimation of Technical and Allocative Inefficiencies in a Cost System: An Exact Maximum Likelihood Approach," MPRA Paper 20173, University Library of Munich, Germany.
    18. Kutlu, Levent, 2013. "Misspecification in allocative inefficiency: A simulation study," Economics Letters, Elsevier, vol. 118(1), pages 151-154.
    19. Yi-Ting Chen & Hung-Jen Wang, 2012. "Centered-Residuals-Based Moment Estimator and Test for Stochastic Frontier Models," Econometric Reviews, Taylor & Francis Journals, vol. 31(6), pages 625-653, November.
    20. Martín, Juan Carlos & Voltes-Dorta, Augusto, 2011. "The econometric estimation of airports' cost function," Transportation Research Part B: Methodological, Elsevier, vol. 45(1), pages 112-127, January.

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