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Dynamic Model Explaining the Asymmetric Distribution of Deviations from the Production Frontier

In: Production Efficiency with the Stochastic Management Model

Author

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  • Akio Torii

    (Chuo University, Institute of Economic Research)

Abstract

In this chapter, we construct stochastic process models where the degree of inefficiency of each establishment fluctuates probabilistically, providing an explanation for the distribution assumed for technical inefficiency. These models demonstrate that distributions commonly assumed in SFA, such as the half-normal distribution, can be understood as stationary distributions resulting from stochastic processes. Adjustments to parameters such as demand structure, cost structure, and discount rate allow for the explanation of a diverse set of stationary distributions. Furthermore, constructing various stochastic process models allows us to describe different distributions of technical inefficiency as stationary distributions. In doing so, we can examine how the characteristics of the mechanism generating technical inefficiency are reflected in the statistical properties of these distributions.

Suggested Citation

  • Akio Torii, 2026. "Dynamic Model Explaining the Asymmetric Distribution of Deviations from the Production Frontier," Springer Books, in: Production Efficiency with the Stochastic Management Model, chapter 0, pages 69-93, Springer.
    • Handle: RePEc:spr:sprchp:978-981-95-3501-9_3
    DOI: 10.1007/978-981-95-3501-9_3
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