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Blaming the exogenous environment? Conditional efficiency estimation with continuous and discrete exogenous variables

  • De Witte, Kristof
  • Mika, Kortelainen

This paper proposes a fully nonparametric framework to estimate relative efficiency of entities while accounting for a mixed set of continuous and discrete (both ordered and unordered) exogenous variables. Using robust partial frontier techniques, the probabilistic and conditional characterization of the production process, as well as insights from the recent developments in nonparametric econometrics, we present a generalized approach for conditional efficiency measurement. To do so, we utilize a tailored mixed kernel function with a data-driven bandwidth selection. So far only descriptive analysis for studying the effect of heterogeneity in conditional efficiency estimation has been suggested. We show how to use and interpret nonparametric bootstrap-based significance tests in a generalized conditional efficiency framework. This allows us to study statistical significance of continuous and discrete exogenous variables on production process. The proposed approach is illustrated using simulated examples as well as a sample of British pupils from the OECD Pisa data set. The results of the empirical application show that several exogenous discrete factors have a statistically significant effect on the educational process.

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File URL: http://mpra.ub.uni-muenchen.de/14034/1/MPRA_paper_14034.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 14034.

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Date of creation: 04 Mar 2009
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Handle: RePEc:pra:mprapa:14034
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  1. Bound, John & Brown, Charles & Mathiowetz, Nancy, 2001. "Measurement error in survey data," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 59, pages 3705-3843 Elsevier.
  2. Tom Broekel & Andreas Meder, 2008. "The Bright and Dark Side of Cooperation for Regional Innovation Performance," DRUID Working Papers 08-12, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
  3. Peter Hall & Jeff Racine & Qi Li, 2004. "Cross-Validation and the Estimation of Conditional Probability Densities," Journal of the American Statistical Association, American Statistical Association, vol. 99, pages 1015-1026, December.
  4. Bonaccorsi, Andrea & Daraio, Cinzia & Räty, Tarmo & Simar, Léopold, 2007. "Efficiency and University Size: Discipline-wise Evidence from European Universities," MPRA Paper 10265, University Library of Munich, Germany.
  5. Kristof DE WITTE & Mika KORTELAINEN, 2008. "Blaming the exogenous environment? Conditional efficiency estimation with continuous and discrete environmental variables," Center for Economic Studies - Discussion papers ces0833, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  6. Laurens Cherchye & Kristof De Witte & Erwin Ooghe, 2008. "Equity and efficiency in private and public education: a nonparametric comparison," Center for Economic Studies - Discussion papers ces0725, Katholieke Universiteit Leuven, Centrum voor Economische Studiën.
  7. Li, Qi & Racine, Jeffrey S, 2008. "Nonparametric Estimation of Conditional CDF and Quantile Functions With Mixed Categorical and Continuous Data," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 423-434.
  8. Fried, Harold O. & Lovell, C. A. Knox & Schmidt, Shelton S. (ed.), 2008. "The Measurement of Productive Efficiency and Productivity Growth," OUP Catalogue, Oxford University Press, number 9780195183528, March.
  9. 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.
  10. Roberta Blass Staub & Geraldo da Silva e Souza, 2007. "A Probabilistic Approach for Assessing the Significance of Contextual Variables in Nonparametric Frontier Models: an Application for Brazilian Banks," Working Papers Series 150, Central Bank of Brazil, Research Department.
  11. Racine, Jeff & Li, Qi, 2004. "Nonparametric estimation of regression functions with both categorical and continuous data," Journal of Econometrics, Elsevier, vol. 119(1), pages 99-130, March.
  12. Cinzia Daraio & Léopold Simar, 2007. "Conditional nonparametric frontier models for convex and nonconvex technologies: a unifying approach," Journal of Productivity Analysis, Springer, vol. 28(1), pages 13-32, October.
  13. Tristen Hayfield & Jeffrey S. Racine, . "Nonparametric Econometrics: The np Package," Journal of Statistical Software, American Statistical Association, vol. 27(i05).
  14. Cinzia Daraio & Leopold Simar, 2003. "Introducing Environmental Variables in Nonparametric Frontier Models: a Probabilistic Approach," LEM Papers Series 2003/17, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
  15. Cazals Catherine & Dudley Paul & Florens Jean-Pierre & Patel Shital & Rodriguez Frank, 2008. "Delivery Offices Cost Frontier: A Robust Non Parametric Approach with Exogenous Variables," Review of Network Economics, De Gruyter, vol. 7(2), pages 1-15, June.
  16. Daouia, Abdelaati & Simar, Leopold, 2007. "Nonparametric efficiency analysis: A multivariate conditional quantile approach," Journal of Econometrics, Elsevier, vol. 140(2), pages 375-400, October.
  17. Badin, Luiza & Daraio, Cinzia & Simar, Léopold, 2010. "Optimal bandwidth selection for conditional efficiency measures: A data-driven approach," European Journal of Operational Research, Elsevier, vol. 201(2), pages 633-640, March.
  18. Jeffery Racine & Jeffrey Hart & Qi Li, 2006. "Testing the Significance of Categorical Predictor Variables in Nonparametric Regression Models," Econometric Reviews, Taylor & Francis Journals, vol. 25(4), pages 523-544.
  19. Simar, Leopold & Wilson, Paul W., 2007. "Estimation and inference in two-stage, semi-parametric models of production processes," Journal of Econometrics, Elsevier, vol. 136(1), pages 31-64, January.
  20. DEPRINS, Dominique & SIMAR, Léopold & TULKENS, Henry, . "Measuring labor-efficiency in post offices," CORE Discussion Papers RP -571, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  21. Qi Li & Jeffrey Scott Racine, 2006. "Nonparametric Econometrics: Theory and Practice," Economics Books, Princeton University Press, edition 1, volume 1, number 8355.
  22. Kristof Witte & Rui Marques, 2011. "Big and beautiful? On non-parametrically measuring scale economies in non-convex technologies," Journal of Productivity Analysis, Springer, vol. 35(3), pages 213-226, June.
  23. Park, B.U. & Simar, L. & Weiner, Ch., 2000. "The Fdh Estimator For Productivity Efficiency Scores," Econometric Theory, Cambridge University Press, vol. 16(06), pages 855-877, December.
  24. Racine, Jeff, 1997. "Consistent Significance Testing for Nonparametric Regression," Journal of Business & Economic Statistics, American Statistical Association, vol. 15(3), pages 369-78, July.
  25. Tom Broekel, 2008. "From Average to the Frontier: A Nonparametric Performance Approach for Analyzing Externalities and Regions’ Innovativeness," Papers in Evolutionary Economic Geography (PEEG) 0804, Utrecht University, Section of Economic Geography, revised May 2008.
  26. Emmanuel Thanassoulis & Maria Da Conceicao & A. Silva Portela, 2002. "School Outcomes: Sharing the Responsibility Between Pupil and School1," Education Economics, Taylor & Francis Journals, vol. 10(2), pages 183-207.
  27. Cherchye, Laurens & De Witte, Kristof & Ooghe, Erwin & Nicaise, Ides, 2010. "Efficiency and equity in private and public education: A nonparametric comparison," European Journal of Operational Research, Elsevier, vol. 202(2), pages 563-573, April.
  28. Daraio, Cinzia & Simar, Leopold, 2006. "A robust nonparametric approach to evaluate and explain the performance of mutual funds," European Journal of Operational Research, Elsevier, vol. 175(1), pages 516-542, November.
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