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Estimating Multiproduct Cost Functions Over Time Using a Mixture of Normals

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  • Daniel Gropper
  • Steven Caudill
  • T. Beard

Abstract

This article proposes the use of finite mixtures of probability distributions to estimate cost functions. The mixture technique allows for the simultaneous existence and unobservability of multiple technologies of production. Technology switching by firms and conventional technical change can be studied directly. We illustrate the technique on a large sample of U.S. Savings and Loan companies, and find strong evidence of multiple technologies. We compare the mixture results to conventional stochastic cost frontier and thick frontier models, and highlight their differences. Copyright Kluwer Academic Publishers 1999

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  • Daniel Gropper & Steven Caudill & T. Beard, 1999. "Estimating Multiproduct Cost Functions Over Time Using a Mixture of Normals," Journal of Productivity Analysis, Springer, vol. 11(3), pages 201-218, June.
    • Handle: RePEc:kap:jproda:v:11:y:1999:i:3:p:201-218
    DOI: 10.1023/A:1007736003616
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