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Consistent estimation of technical and allocative efficiencies for a semiparametric stochastic cost frontier with shadow input prices

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  • Tai-Hsin Huang
  • Kuan-Chen Chen
  • Chien-Hsiu Lin
  • Ming-Tai Chung

Abstract

Conventional parametric stochastic cost frontier models are likely to suffer from biased inferences due to misspecification and the ignorance of allocative efficiency (AE). To fill up the gap in the literature, this article proposes a semiparametric stochastic cost frontier with shadow input prices that combines a parametric portion with a nonparametric portion and that allows for the presence of both technical efficiency (TE) and AE. The introduction of AE and the nonparametric function into the cost function complicates substantially the estimation procedure. We develop a new estimation procedure that leads to consistent estimators and valid TE and AE measures, which are proved by conducting Monte Carlo simulations. Copyright Springer Science+Business Media, LLC 2014

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  • Tai-Hsin Huang & Kuan-Chen Chen & Chien-Hsiu Lin & Ming-Tai Chung, 2014. "Consistent estimation of technical and allocative efficiencies for a semiparametric stochastic cost frontier with shadow input prices," Journal of Productivity Analysis, Springer, vol. 41(2), pages 307-320, April.
    • Handle: RePEc:kap:jproda:v:41:y:2014:i:2:p:307-320
    DOI: 10.1007/s11123-012-0316-9
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    More about this item

    Keywords

    Semiparametric cost frontier; Monte Carlo simulations; Shadow prices; Technical efficiency; Allocative efficiency; C14; C15; C33; G21;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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