Endogenous environmental variables in stochastic frontier models
This paper considers a stochastic frontier model that contains environmental variables that affect the level of inefficiency but not the frontier. The model contains statistical noise, potentially endogenous regressors, and technical inefficiency that follows the scaling property, in the sense that it is the product of a basic (half-normal) inefficiency term and a parametric function of the environmental variables. The environmental variables may be endogenous because they are correlated with the statistical noise or with the basic inefficiency term.
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