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Estimation of long-run inefficiency levels: a dynamic frontier approach

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  • Seung Ahn
  • Robin Sickles

Abstract

Cornwell, Schmidt, and Sickles (1990) and Kumbhakar (1990), among others, developed stochasticfrontier production models which allow firm specific inefficiency levels to change over time. These studies assumed arbitrary restrictions on the short-run dynamics of efficiency levels which have little theoretical justification. Further, the models are inappropriate for estimation of long-run efficiencies. We consider estimation of an alternative frontier model in which firmspecific technical inefficiency levels are autoregressive. This model is particularly useful to examine a potential dynamic link between technical innovations and production inefficiency levels. We apply our methodology to a panel of US airlines.

Suggested Citation

  • Seung Ahn & Robin Sickles, 2000. "Estimation of long-run inefficiency levels: a dynamic frontier approach," Econometric Reviews, Taylor & Francis Journals, vol. 19(4), pages 461-492.
  • Handle: RePEc:taf:emetrv:v:19:y:2000:i:4:p:461-492 DOI: 10.1080/07474930008800482
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    References listed on IDEAS

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    1. Stephen Bond & Anke Hoeffler & Jonathan Temple, 2001. "GMM Estimation of Empirical Growth Models," Economics Papers 2001-W21, Economics Group, Nuffield College, University of Oxford.
    2. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
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    4. Z, Griliches & Jacques Mairesse, 1997. "Production Functions : The Search for Identification," Working Papers 97-30, Center for Research in Economics and Statistics.
    5. Arellano, Manuel & Bover, Olympia, 1995. "Another look at the instrumental variable estimation of error-components models," Journal of Econometrics, Elsevier, vol. 68(1), pages 29-51, July.
    6. Nelson, Charles R & Startz, Richard, 1990. "Some Further Results on the Exact Small Sample Properties of the Instrumental Variable Estimator," Econometrica, Econometric Society, vol. 58(4), pages 967-976, July.
    7. Blundell, Richard & Bond, Stephen, 1998. "Initial conditions and moment restrictions in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 87(1), pages 115-143, August.
    8. Douglas Staiger & James H. Stock, 1997. "Instrumental Variables Regression with Weak Instruments," Econometrica, Econometric Society, vol. 65(3), pages 557-586, May.
    9. Zvi Griliches & Jacques Mairesse, 1995. "Production Functions: The Search for Identification," Harvard Institute of Economic Research Working Papers 1719, Harvard - Institute of Economic Research.
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