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Modelling a stochastic profit system using gauge function

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  • Yongseung Han

Abstract

This article provides an analytical solution to the ‘Greene problem’; use of McFadden's gauge function successfully separates technical inefficiency from the profit function and its share equations, even though allocative inefficiency is incorporated into the profit system, and establishes an exact relationship between allocative inefficiency in the profit function and its share equations to make the system readily estimable.

Suggested Citation

  • Yongseung Han, 2012. "Modelling a stochastic profit system using gauge function," Applied Economics Letters, Taylor & Francis Journals, vol. 19(9), pages 823-827, June.
    • Handle: RePEc:taf:apeclt:v:19:y:2012:i:9:p:823-827
    DOI: 10.1080/13504851.2011.605754
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    7. Kumbhakar, Subal C. & Tsionas, Efthymios G., 2005. "Measuring technical and allocative inefficiency in the translog cost system: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 126(2), pages 355-384, June.
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    Cited by:

    1. Kumbhakar, Subal C., 2013. "Specification and estimation of multiple output technologies: A primal approach," European Journal of Operational Research, Elsevier, vol. 231(2), pages 465-473.

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