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Frontier Estimation of a Cost Function System Model with Local Least Squares: An Application to Dutch Secondary Education

In: Productivity and Inequality

Author

Listed:
  • Jos L. T. Blank

    (Delft University of Technology
    Erasmus University Rotterdam)

Abstract

In this paper, we propose a method for cost efficiency measurement that is based on local estimation in several stages. The method is based on weighted least squares where weights depend on the distance of an observation to all other observations and on the distance to the cost frontier. The new element in the method is that it also includes the information from the cost share equations and includes cost efficiency in the weighting matrix. The latter is derived from a first stage and implemented in a second stage analysis. An application to a data set of Dutch school boards in secondary education shows that it works well in practice. It produces a number of reliable estimates. It also shows a variation in outcomes that would be hard to cover with, for instance, traditional procedures such as SFA on a translog cost function.

Suggested Citation

  • Jos L. T. Blank, 2018. "Frontier Estimation of a Cost Function System Model with Local Least Squares: An Application to Dutch Secondary Education," Springer Proceedings in Business and Economics, in: William H. Greene & Lynda Khalaf & Paul Makdissi & Robin C. Sickles & Michael Veall & Marcel-Cristia (ed.), Productivity and Inequality, pages 103-118, Springer.
    • Handle: RePEc:spr:prbchp:978-3-319-68678-3_4
    DOI: 10.1007/978-3-319-68678-3_4
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    More about this item

    Keywords

    Local estimation; Cost efficiency; Scale economies; Technical change; Education;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • I21 - Health, Education, and Welfare - - Education - - - Analysis of Education

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