Cross-entropy estimation in technical efficiency analysis

Technical efficiency analysis is a fundamental tool to measure the performance of production activity. Recently, an increasing interest in the state-contingent approach has emerged in the literature although such interest has not yet been accompanied by an increase of empirical applications. This is largely due to the fact that empirical models with state-contingent production frontiers are usually ill-posed. In this work, a discussion on the role of the generalized cross-entropy estimator within the state-contingent production framework is presented. To the best of the authors’ knowledge, the example provided in this work is the first real-world empirical application on technical efficiency analysis with the state-contingent approach using the generalized cross-entropy estimator.