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A Monte Carlo Analysis of Technical Inefficiency Predictors

  • Kumbhakar, Subal C.

    (Department of Economics)

  • Löthgren, Mickael

    ()

    (Dept. of Economic Statistics, Stockholm School of Economics)

This paper studies performance of both point and interval predictors of technical inefficiency in the stochastic production frontier model using a Monte Carlo experiment. In point prediction we use the Jondrow et al. (1980) point predictor of technical inefficiency, while for interval prediction the Horrace and Schmidt (1996) and Hjalmarsson et al. (1996) results are used. When ML estimators are used we find negative bias in point predictions. MSEs are found to decline as the sample size increases. The mean empirical coverage accuracy of the confidence intervals are significantly below the theoretical confidence level for all values of the variance ratio.

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Paper provided by Stockholm School of Economics in its series SSE/EFI Working Paper Series in Economics and Finance with number 229.

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Length: 10 pages
Date of creation: 23 Mar 1998
Date of revision:
Handle: RePEc:hhs:hastef:0229
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  1. 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.
  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. Olson, Jerome A. & Schmidt, Peter & Waldman, Donald M., 1980. "A Monte Carlo study of estimators of stochastic frontier production functions," Journal of Econometrics, Elsevier, vol. 13(1), pages 67-82, May.
  4. William C. Horrace & Peter Schmidt, 2002. "Confidence Statements for Efficiency Estimates from Stochastic Frontier Models," Econometrics 0206006, EconWPA.
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