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Stochastic FDH/DEA estimators for frontier analysis

Author

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  • Simar, Leopold
  • Zelenyuk, Valentin

Abstract

In this paper we extend the work of Simar (2007) introducing noise in nonparametric frontier models. We develop an approach that synthesizes the best features of the two main methods in the estimation of production efficiency. Specifically, our approach first allows for statistical noise, similar to Stochastic Frontier Analysis (even in a more flexible way), and second, it allows modelling multiple-inputs-multiple-outputs technologies without imposing parametric assumptions on production relationship, similar to what is done in non-parametric methods (DEA, FDH, etc. . . ). The methodology is based on the theory of local maximum likelihood estimation and extends recent works of Park, Kumbhakar, Simar and Tsionas (2007) and Park, Simar and Zelenyuk (2006). Our method is suitable for modelling and estimation of the marginal effects onto inefficiency level jointly with estimation of marginal effects of input. The approach is robust to heteroskedastic cases and to various (unknown) distributions of statistical noise and inefficiency, despite assuming simple anchorage models. The method also improves DEA/FDH estimators, by allowing them to be quite robust to statistical noise and especially to outliers, which were the main problems of the original DEA/FDH. The procedure shows great performance for various simulated cases and is also illustrated for some real data sets.
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Suggested Citation

  • Simar, Leopold & Zelenyuk, Valentin, 2011. "Stochastic FDH/DEA estimators for frontier analysis," LIDAM Reprints ISBA 2011026, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    • Handle: RePEc:aiz:louvar:2011026
    Note: In : Journal of Productivity Analysis, vol. 36, no. 1, p. 1-20 (2011)
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    References listed on IDEAS

    as
    1. Dieter Gstach, 1998. "Another Approach to Data Envelopment Analysis in Noisy Environments: DEA+," Journal of Productivity Analysis, Springer, vol. 9(2), pages 161-176, March.
    2. Léopold Simar & Paul Wilson, 2000. "Statistical Inference in Nonparametric Frontier Models: The State of the Art," Journal of Productivity Analysis, Springer, vol. 13(1), pages 49-78, January.
    3. Christian Ritter & Léopold Simar, 1997. "Pitfalls of Normal-Gamma Stochastic Frontier Models," Journal of Productivity Analysis, Springer, vol. 8(2), pages 167-182, May.
    4. 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.
    5. Stevenson, Rodney E., 1980. "Likelihood functions for generalized stochastic frontier estimation," Journal of Econometrics, Elsevier, vol. 13(1), pages 57-66, May.
    6. Kumbhakar, Subal C. & Park, Byeong U. & Simar, Leopold & Tsionas, Efthymios G., 2007. "Nonparametric stochastic frontiers: A local maximum likelihood approach," Journal of Econometrics, Elsevier, vol. 137(1), pages 1-27, March.
    7. repec:cor:louvrp:-571 is not listed on IDEAS
    8. Park, Byeong U. & Simar, Léopold & Zelenyuk, Valentin, 2008. "Local likelihood estimation of truncated regression and its partial derivatives: Theory and application," Journal of Econometrics, Elsevier, vol. 146(1), pages 185-198, September.
    9. Leopold Simar & Paul Wilson, 2010. "Inferences from Cross-Sectional, Stochastic Frontier Models," Econometric Reviews, Taylor & Francis Journals, vol. 29(1), pages 62-98.
    10. Léopold Simar, 2007. "How to improve the performances of DEA/FDH estimators in the presence of noise?," Journal of Productivity Analysis, Springer, vol. 28(3), pages 183-201, December.
    11. Atkinson, Scott E. & Primont, Daniel, 2002. "Stochastic estimation of firm technology, inefficiency, and productivity growth using shadow cost and distance functions," Journal of Econometrics, Elsevier, vol. 108(2), pages 203-225, June.
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    15. Daouia, Abdelaati & Simar, Leopold, 2007. "Nonparametric efficiency analysis: A multivariate conditional quantile approach," Journal of Econometrics, Elsevier, vol. 140(2), pages 375-400, October.
    16. Kneip, Alois & Simar, Léopold & Wilson, Paul W., 2008. "Asymptotics And Consistent Bootstraps For Dea Estimators In Nonparametric Frontier Models," Econometric Theory, Cambridge University Press, vol. 24(6), pages 1663-1697, December.
    17. Cazals, Catherine & Florens, Jean-Pierre & Simar, Leopold, 2002. "Nonparametric frontier estimation: a robust approach," Journal of Econometrics, Elsevier, vol. 106(1), pages 1-25, January.
    18. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    19. 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.
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    More about this item

    JEL classification:

    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C2 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables

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