IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A Monte Carlo Study on Multiple Output Stochastic Frontiers: Comparison of Two Approaches

  • Géraldine Henningsen

    ()

    (DTU Management Engineering, Technical University of Denmark)

  • Arne Henningsen

    ()

    (Department of Food and Resource Economics, University of Copenhagen)

  • Uwe Jensen

    ()

    (Institute for Statistics and Econometrics, University of Kiel)

In the estimation of multiple output technologies in a primal approach, the main question is how to handle the multiple outputs. Often an output distance function is used, where the classical approach is to exploit its homogeneity property by selecting one output quantity as the dependent variable, dividing all other output quantities by the selected output quantity, and using these ratios as regressors (OD). Another approach is the stochastic ray production frontier (SR) which transforms the output quantities into their Euclidean distance as the dependent variable and their polar coordinates as directional components as regressors. A number of studies have compared these specifications using real world data and have found significant differences in the inefficiency estimates. However, in order to get to the bottom of these differences, we apply a Monte-Carlo simulation. We test the robustness of both specifications for the case of a Translog output distance function with respect to different common statistical problems as well as problems arising as a consequence of zero values in the output quantities. Although, our results partly show clear reactions to statistical misspecifications, on average none of the approaches is superior. However, considerable differences are found between the estimates at single replications. In the case of zero values in the output quantities, the SR clearly outperforms the OD, although this advantage nearly vanishes when zeros are replaced by a small number.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2013/IFRO_WP_2013_7.pdf
Download Restriction: no

Paper provided by University of Copenhagen, Department of Food and Resource Economics in its series IFRO Working Paper with number 2013/7.

as
in new window

Length: 31 pages
Date of creation: Apr 2013
Date of revision:
Handle: RePEc:foi:wpaper:2013_7
Contact details of provider: Web page: http://www.ifro.ku.dk/english/
Email:


More information through EDIRC

No references listed on IDEAS
You can help add them by filling out this form.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:foi:wpaper:2013_7. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Geir Tveit)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.