The Recursive Thick Frontier Approach to Estimating Efficiency
The traditional econometric techniques for frontier models, namely the Stochastic Frontier Approach (SFA), the Thick Frontier Approach (TFA) and the Distribution Free Approach (DFA) have in common that they depend on a priori assumptions that are, whether feasible or not, difficult to test. This paper introduces the Recursive Thick Frontier Approach (RTFA) to the estimation of technology parameters when panel data is available. Our approach is based on the assertion that if deviations from the frontier of X-efficient companies are completely random then one must observe for this group of firms that the probability of being located either above or below the frontier is equal to one half. This hypothesis can be tested for panel data sets but requires sorting of the full sample into a group of X-inefficient firms and a group of X-efficient (best practice) firms. The cost frontier is estimated using only the observations of the latter category.
|Date of creation:||01 Jul 1999|
|Contact details of provider:|| Postal: 100, boulevard Konrad Adenauer, L-2950 Luxembourg|
Phone: (+352) 43 79 1
Fax: (+352) 43 79 68 895
Web page: http://www.eib.org/efs/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- T. S. Breusch & A. R. Pagan, 1980.
"The Lagrange Multiplier Test and its Applications to Model Specification in Econometrics,"
Review of Economic Studies,
Oxford University Press, vol. 47(1), pages 239-253.
- Breusch, T.S. & Pagan, A.R., "undated". "The Lagrange multiplier test and its applications to model specification in econometrics," CORE Discussion Papers RP 412, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- 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.
- Charnes, A. & Cooper, W. W. & Rhodes, E., 1978. "Measuring the efficiency of decision making units," European Journal of Operational Research, Elsevier, vol. 2(6), pages 429-444, November.
- Kopp, Raymond J. & Mullahy, John, 1990. "Moment-based estimation and testing of stochastic frontier models," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 165-183.
- Wagenvoort, Rien & Schure, Paul, 1999. "Economies of Scale and Efficiency in European Banking: New Evidence," Economic and Financial Reports 1999/1, European Investment Bank, Economics Department.
- Hinloopen, Jeroen & Wagenvoort, Rien, 1997. "On the computation and efficiency of a HBP-GM estimator some simulation results," Computational Statistics & Data Analysis, Elsevier, vol. 25(1), pages 1-15, July.
- 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)