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On the choice of functional form in stochastic frontier modeling

Author

Listed:
  • Konstantinos Giannakas
  • Kien C. Tran
  • Vangelis Tzouvelekas

Abstract

This paper examines the effect of functional form specification on the estimation of technical efficiency using a panel data set of 125 olive-growing farms in Greece for the period 1987–93. The generalized quadratic Box-Cox transformation is used to test the relative performance of alternative, widely used, functional forms and to examine the effect of prior choice on final efficiency estimates. Other than the functional specifications nested within the Box-Cox transformation, the comparative analysis includes the minflex Laurent translog and generalized Leontief that possess desirable approximation properties. The results indicate that technical efficiency measures are very sensitive to the choice of functional specification. Perhaps most importantly, the choice of functional form affects the identification of the factors affecting individual performance – the sources of technical inefficiency. The analysis also shows that while specification searches do narrow down the set of feasible alternatives, the identification of the most appropriate functional specification might not always be (statistically) feasible. Copyright Springer-Verlag Berlin Heidelberg 2003

Suggested Citation

  • Konstantinos Giannakas & Kien C. Tran & Vangelis Tzouvelekas, 2003. "On the choice of functional form in stochastic frontier modeling," Empirical Economics, Springer, vol. 28(1), pages 75-100, January.
    • Handle: RePEc:spr:empeco:v:28:y:2003:i:1:p:75-100
    DOI: 10.1007/s001810100120
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    Keywords

    Key words: Stochastic frontiers; functional specifications; Box-Cox transformation; technical efficiency; Greek olive oil.; JEL Classification System Numbers: C12; C13; C23; C52; Q12;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • 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
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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