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Modified fixed effects estimation of technical inefficiency

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  • Daniel Wikström

    (Dalarna University)

Abstract

We consider method-of-moments fixed effects (FE) estimation of technical inefficiency. When dealing with a large number of cross-sectional observations, N, it is possible to obtain consistent moment estimators of the inefficiency distribution. It is well known that the classical FE estimator may be seriously upward biased when N is large and T, the number of time observations, is small. The method-of-moments FE estimators do not suffer from this type of bias in large-N settings. The proposed methodology bridges classical FE and maximum likelihood estimation, leading to a reduction in bias without making the random effects assumption.

Suggested Citation

  • Daniel Wikström, 2016. "Modified fixed effects estimation of technical inefficiency," Journal of Productivity Analysis, Springer, vol. 46(1), pages 83-86, August.
    • Handle: RePEc:kap:jproda:v:46:y:2016:i:1:d:10.1007_s11123-016-0473-3
    DOI: 10.1007/s11123-016-0473-3
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    References listed on IDEAS

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    2. Wang, Wei Siang & Schmidt, Peter, 2009. "On the distribution of estimated technical efficiency in stochastic frontier models," Journal of Econometrics, Elsevier, vol. 148(1), pages 36-45, January.
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    4. Jeffrey M Wooldridge, 2010. "Econometric Analysis of Cross Section and Panel Data," MIT Press Books, The MIT Press, edition 2, volume 1, number 0262232588, December.
    5. Greene, William H., 1980. "Maximum likelihood estimation of econometric frontier functions," Journal of Econometrics, Elsevier, vol. 13(1), pages 27-56, May.
    6. Richmond, J, 1974. "Estimating the Efficiency of Production," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 15(2), pages 515-521, June.
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    Cited by:

    1. Parmeter, Christopher F., 2021. "Is it MOLS or COLS?," Efficiency Series Papers 2021/04, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).

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    More about this item

    Keywords

    Technical inefficiency; Fixed effects estimator; Method of moments;
    All these keywords.

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models

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