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An Empirical Model of Behavioral Heterogeneity


  • Subal C. Kumbhakar


  • Mike G. Tsionas

    (Lancaster University and Athens University)


"In this paper we propose a new latent class/mixture model (LCM) to determine whether firms behave like profit maximizers or just cost minimizers when there is no additional sample separation information. Since some firms might be maximizing profit while others might minimize cost, the LCM with behavioral heterogeneity can be quite useful. Estimation of the LCM amounts to mixing a cost minimization and a profit maximization model. Using the U.S. airlines data we find that after deregulation about 15% of the airlines are found to be consistent with profit maximizing behavior. "

Suggested Citation

  • Subal C. Kumbhakar & Mike G. Tsionas, 2016. "An Empirical Model of Behavioral Heterogeneity," Review of Economic Analysis, Digital Initiatives at the University of Waterloo Library, vol. 8(2), pages 125-134, December.
  • Handle: RePEc:ren:journl:v:8:y:2016:i:2:p:125-134

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    Cost minimization; profit maximization; latent class; US airlines.;

    JEL classification:

    • L93 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Air Transportation


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