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“When, Where, and How” of Efficiency Estimation: Improved Procedures for Stochastic Frontier Modeling

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  • Mike G. Tsionas

Abstract

The issues of functional form, distributions of the error components, and endogeneity are for the most part still open in stochastic frontier models. The same is true when it comes to imposition of restrictions of monotonicity and curvature, making efficiency estimation an elusive goal. In this article, we attempt to consider these problems simultaneously and offer practical solutions to the problems raised by Stone and addressed by Badunenko, Henderson and Kumbhakar. We provide major extensions to smoothly mixing regressions and fractional polynomial approximations for both the functional form of the frontier and the structure of inefficiency. Endogeneity is handled, simultaneously, using copulas. We provide detailed computational experiments and an application to U.S. banks. To explore the posteriors of the new models we rely heavily on sequential Monte Carlo techniques.

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  • Mike G. Tsionas, 2017. "“When, Where, and How” of Efficiency Estimation: Improved Procedures for Stochastic Frontier Modeling," Journal of the American Statistical Association, Taylor & Francis Journals, vol. 112(519), pages 948-965, July.
  • Handle: RePEc:taf:jnlasa:v:112:y:2017:i:519:p:948-965
    DOI: 10.1080/01621459.2016.1246364
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    References listed on IDEAS

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    2. repec:eee:ejores:v:271:y:2018:i:3:p:797-807 is not listed on IDEAS
    3. repec:eee:ejores:v:278:y:2019:i:1:p:255-265 is not listed on IDEAS
    4. Christopher F. Parmeter & Alan T. K. Wan & Xinyu Zhang, 2019. "Model averaging estimators for the stochastic frontier model," Journal of Productivity Analysis, Springer, vol. 51(2), pages 91-103, June.

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