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Technical and allocative efficiency in a panel stochastic production frontier system model

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

Abstract

In this paper, we consider a state-of-the-art panel stochastic production frontier model and estimate it using a system that includes both technical and allocative inefficiency. The system consists of the optimal input choice rule (the first-order conditions (FOCs)) under cost minimization together with the production function. The FOCs are used to take care of endogeneity of inputs. Allocative inefficiency is modeled as non-fulfillment of the FOCs. We use distributional assumptions on the noise and inefficiency components and estimate the model parameters using the maximum likelihood method. In estimating technical and allocative inefficiency components and costs therefrom we control for fixed firm-effects in each equation of the system. We also correct for the incidental parameter bias by using the half-panel jackknife estimator.

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  • Lai, Hung-pin & Kumbhakar, Subal C., 2019. "Technical and allocative efficiency in a panel stochastic production frontier system model," European Journal of Operational Research, Elsevier, vol. 278(1), pages 255-265.
    • Handle: RePEc:eee:ejores:v:278:y:2019:i:1:p:255-265
    DOI: 10.1016/j.ejor.2019.04.001
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    Cited by:

    1. Kumbhakar, Subal C. & Peresetsky, Anatoly & Shchetynin, Yevgenii & Zaytsev, Alexey, 2020. "Technical efficiency and inefficiency: Reassurance of standard SFA models and a misspecification problem," MPRA Paper 102797, University Library of Munich, Germany.
    2. Tsionas, Mike G. & Kumbhakar, Subal C., 2021. "Stochastic frontier models with time-varying conditional variances," European Journal of Operational Research, Elsevier, vol. 292(3), pages 1115-1132.
    3. Caroline Khan & Mike G. Tsionas, 2021. "Constraints in models of production and cost via slack-based measures," Empirical Economics, Springer, vol. 61(6), pages 3347-3374, December.
    4. Paul, Satya & Shankar, Sriram, 2022. "Regulatory reforms and the efficiency and productivity growth in electricity generation in OECD countries," Energy Economics, Elsevier, vol. 108(C).
    5. Liu, Tung, 2021. "Measuring cost inefficiency: A dual approach," Economic Modelling, Elsevier, vol. 99(C).
    6. Delis, Manthos D. & Iosifidi, Maria & Tsionas, Mike, 2020. "Management estimation in banking," European Journal of Operational Research, Elsevier, vol. 284(1), pages 355-372.
    7. Kumbhakar, Subal C. & Tsionas, Mike G., 2020. "On the estimation of technical and allocative efficiency in a panel stochastic production frontier system model: Some new formulations and generalizations," European Journal of Operational Research, Elsevier, vol. 287(2), pages 762-775.
    8. Musau, Andrew & Kumbhakar, Subal C. & Mydland, Ørjan & Lien, Gudbrand, 2021. "Determinants of allocative and technical inefficiency in stochastic frontier models: An analysis of Norwegian electricity distribution firms," European Journal of Operational Research, Elsevier, vol. 288(3), pages 983-991.
    9. Subal C. Kumbhakar & Mike G. Tsionas, 2021. "Estimation of costs of technical and allocative inefficiency," Journal of Productivity Analysis, Springer, vol. 55(1), pages 41-46, February.

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