Unobserved heterogeneity in stochastic cost frontier models: an application to Swiss nursing homes
This paper applies a number of stochastic cost frontier models to a panel data set and compares their ability to distinguish unobserved heterogeneity from inefficiency variation among firms. The main focus is on Greene's 2005 panel data model that incorporates firm-specific effects in a stochastic frontier framework. In cases where the unobserved heterogeneity is correlated with explanatory variables, while the random effects estimators can be biased the fixed effects model may overestimate inefficiency. In line with Mundlak, a simple method is proposed to include such correlations in random effects specification. The sample includes 36 Swiss nursing homes operating from 1993 to 2001. The results suggest that the proposed specification can avoid the inconsistency problem while keeping the inefficiency estimates unaffected.
Volume (Year): 37 (2005)
Issue (Month): 18 ()
|Contact details of provider:|| Web page: http://www.tandfonline.com/RAEC20|
|Order Information:||Web: http://www.tandfonline.com/pricing/journal/RAEC20|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Massimo Filippini, 2001.
"Economies of scale in the Swiss nursing home industry,"
Applied Economics Letters,
Taylor & Francis Journals, vol. 8(1), pages 43-46.
- Massimo Filippini, 1999. "Economies Of Scale In The Swiss Nursing Home Industry," SOI - Working Papers 9901, Socioeconomic Institute - University of Zurich.
- Mehdi Farsi & Massimo Filippini, 2004. "An Empirical Analysis of Cost Efficiency in Non-profit and Public Nursing Homes," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 75(3), pages 339-365, 09.
- Kumbhakar,Subal C. & Lovell,C. A. Knox, 2003. "Stochastic Frontier Analysis," Cambridge Books, Cambridge University Press, number 9780521666633.
- Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990.
"Production frontiers with cross-sectional and time-series variation in efficiency levels,"
Journal of Econometrics,
Elsevier, vol. 46(1-2), pages 185-200.
- Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1989. "Production Frontiers With Cross-Sectinal And Time-Series Variation In Efficiency Levels," Working Papers 89-18, C.V. Starr Center for Applied Economics, New York University.
- Uwe Jensen, 2000. "Is it efficient to analyse efficiency rankings?," Empirical Economics, Springer, vol. 25(2), pages 189-208.
- Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-74, October.
- Pitt, Mark M. & Lee, Lung-Fei, 1981. "The measurement and sources of technical inefficiency in the Indonesian weaving industry," Journal of Development Economics, Elsevier, vol. 9(1), pages 43-64, August.
- Subal Kumbhakar, 1997. "Efficiency estimation with heteroscedasticity in a panel data model," Applied Economics, Taylor & Francis Journals, vol. 29(3), pages 379-386.
- Jondrow, James & Knox Lovell, C. A. & Materov, Ivan S. & Schmidt, Peter, 1982. "On the estimation of technical inefficiency in the stochastic frontier production function model," Journal of Econometrics, Elsevier, vol. 19(2-3), pages 233-238, August.
- Mundlak, Yair, 1978. "On the Pooling of Time Series and Cross Section Data," Econometrica, Econometric Society, vol. 46(1), pages 69-85, January.
- Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
- Almas Heshmati, 1998. "Efficiency measurement in rotating panel data," Applied Economics, Taylor & Francis Journals, vol. 30(7), pages 919-930.
- Andrew Street, 2003. "How much confidence should we place in efficiency estimates?," Health Economics, John Wiley & Sons, Ltd., vol. 12(11), pages 895-907.
- Polachek, Solomon W & Yoon, Bong Joon, 1996. "Panel Estimates of a Two-Tiered Earnings Frontier," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(2), pages 169-78, March-Apr.
- Cornes,Richard, 1992. "Duality and Modern Economics," Cambridge Books, Cambridge University Press, number 9780521336017.
- Cohen, Joel W. & Spector, William D., 1996. "The effect of Medicaid reimbursement on quality of care in nursing homes," Journal of Health Economics, Elsevier, vol. 15(1), pages 23-48, February.
When requesting a correction, please mention this item's handle: RePEc:taf:applec:v:37:y:2005:i:18:p:2127-2141. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty)
If references are entirely missing, you can add them using this form.