Fixed and Random Effects in Stochastic Frontier Models
Received stochastic frontier analyses with panel data have relied on traditional fixed and random effects models. We propose extensions that circumvent two shortcomings of these approaches. The conventional panel data estimators assume that technical or cost inefficiency is time invariant. Second, the fixed and random effects estimators force any time invariant cross unit heterogeneity into the same term that is being used to capture the inefficiency. Inefficiency measures in these models may be picking up heterogeneity in addition to or even instead of inefficiency. A fixed effects model is extended to the stochastic frontier model using results that specifically employ the nonlinear specification. The random effects model is reformulated as a special case of the random parameters model. The techniques are illustrated in applications to the U.S. banking industry and a cross country comparison of the efficiency of health care delivery. Copyright Springer Science+Business Media, Inc. 2005
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|Date of creation:||2002|
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- William Greene, 2001.
"Fixed and Random Effects in Nonlinear Models,"
01-01, New York University, Leonard N. Stern School of Business, Department of Economics.
- Greene, W., 2001. "Fixed and Random Effects in Nonlinear Models," New York University, Leonard N. Stern School Finance Department Working Paper Seires 01-01, New York University, Leonard N. Stern School of Business-.
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- Peter Schmidt & Chirok Han & Luis Orea, 2004.
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Econometric Society 2004 Far Eastern Meetings
519, Econometric Society.
- Han, Chirok & Orea, Luis & Schmidt, Peter, 2005. "Estimation of a panel data model with parametric temporal variation in individual effects," Journal of Econometrics, Elsevier, vol. 126(2), pages 241-267, June.
- Han, Chirok & Orea, Luis & Schmidt, Peter, 2002. "Estimation of a Panel Data Model with Parametric Temporal Variation in Individual Effects," Efficiency Series Papers 2002/05, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
- William Greene, 2002. "The Behavior of the Fixed Effects Estimator in Nonlinear Models," Working Papers 02-05, New York University, Leonard N. Stern School of Business, Department of Economics.
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