IDEAS home Printed from
   My bibliography  Save this paper

Stochastic Frontiers and Asymmetric Information Models


  • Philippe Gagnepain

    () (Departamento de Economía - Universidad Carlos III de Madrid)

  • Marc Ivaldi

    () (TSE - Toulouse School of Economics - Toulouse School of Economics)


This article is an attempt to shed light on the specification and identification of inefficiency in stochastic frontiers. We consider the case of a regulated firm or industry. Applying a simple principal-agent framework that accounts for informational asymmetries to this context, we derive the associated production and cost frontiers. Noticeably this approach yields a decomposition of inefficiency into two components: The first component is a pure random term while the second component depends on the unobservable actions taken by the agent (the firm). This result provides a theoretical foundation to the usual specification applied in the literature on stochastic frontiers. An application to a panel data set of French urban transport networks serves as an illustration.

Suggested Citation

  • Philippe Gagnepain & Marc Ivaldi, 2002. "Stochastic Frontiers and Asymmetric Information Models," Post-Print hal-00622849, HAL.
  • Handle: RePEc:hal:journl:hal-00622849
    Note: View the original document on HAL open archive server:

    Download full text from publisher

    File URL:
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    1. Vuong, Quang H, 1989. "Likelihood Ratio Tests for Model Selection and Non-nested Hypotheses," Econometrica, Econometric Society, vol. 57(2), pages 307-333, March.
    2. 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.
    3. 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.
    4. Schmidt, Peter & Sickles, Robin C, 1984. "Production Frontiers and Panel Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 2(4), pages 367-374, October.
    5. Loeb, Martin & Magat, Wesley A, 1979. "A Decentralized Method for Utility Regulation," Journal of Law and Economics, University of Chicago Press, vol. 22(2), pages 399-404, October.
    6. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
    7. 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.
    Full references (including those not matched with items on IDEAS)


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Beniamina Margari & Fabrizio Erbetta & Carmelo Petraglia & Massimiliano Piacenza, 2007. "Regulatory and environmental effects on public transit efficiency: a mixed DEA-SFA approach," Journal of Regulatory Economics, Springer, vol. 32(2), pages 131-151, October.
    2. Philippe Gagnepain & Marc Ivaldi, 2002. "Incentive Regulatory Policies: The Case of Public Transit Systems in France," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 605-629, Winter.
    3. Cinzia Daraio & Marco Diana & Flavia Di Costa & Claudio Leporelli & Giorgio Matteucci & Alberto Nastasi, 2014. "Efficiency and effectiveness in the urban public transport sector: a critical review with directions for future research," DIAG Technical Reports 2014-14, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    4. Huang, Di & Liu, Zhiyuan & Liu, Pan & Chen, Jun, 2016. "Optimal transit fare and service frequency of a nonlinear origin-destination based fare structure," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 96(C), pages 1-19.
    5. Gagnepain, Philippe & Marin, Pedro L, 2006. "Regulation and Incentives in European Aviation," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 229-248, April.
    6. Francesco, Gastaldi & Lucia, Quaglino & Carlo, Stagnaro, 2012. "Il trasporto pubblico locale e la concorrenza. Cambiare paradigma per salvare il servizio: il caso ligure
      [Local Public Transportation and Competition. Changing Paradigm to Save the Service: The Ca
      ," MPRA Paper 49464, University Library of Munich, Germany.
    7. Augustin, Katrin & Walter, Matthias, 2010. "Operator changes through competitive tendering: Empirical evidence from German local bus transport," Research in Transportation Economics, Elsevier, vol. 29(1), pages 36-44.
    8. Philippe Gagnepain & Marc Ivaldi & Catherine Muller-Vibes, 2011. "The Industrial Organization of Competition in Local Bus Services," Chapters,in: A Handbook of Transport Economics, chapter 32 Edward Elgar Publishing.
    9. Massimiliano Piacenza, 2000. "The Public Transit Systems In Italy: A Critical Analysis Of The Regulatory Framework," CERIS Working Paper 200016, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
    10. de Borger, Bruno & Kerstens, Kristiaan & Staat, Matthias, 2008. "Transit costs and cost efficiency: Bootstrapping non-parametric frontiers," Research in Transportation Economics, Elsevier, vol. 23(1), pages 53-64, January.
    11. Guerino Ardizzi, 2003. "Cost efficiency in the retail payment networks: first evidence from the Italian credit card system," Temi di discussione (Economic working papers) 480, Bank of Italy, Economic Research and International Relations Area.
    12. Leonardo J. Basso & Sergio R. Jara-Díaz & William G. Waters, 2011. "Cost Functions for Transport Firms," Chapters,in: A Handbook of Transport Economics, chapter 12 Edward Elgar Publishing.
    13. Massimiliano Piacenza, 2002. "Regulatory Constraints and Cost Efficiency of the Italian Public Transit Systems: An Exploratory Stochastic Frontier Model," CERIS Working Paper 200202, Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY -NOW- Research Institute on Sustainable Economic Growth - Moncalieri (TO) ITALY.
    14. Philippe Gagnepain, 2001. "La nouvelle théorie de la régulation des monopoles naturels : fondements et tests," Post-Print hal-00622947, HAL.

    More about this item

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-00622849. 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: (CCSD). General contact details of provider: .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.