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A new approach to stochastic frontier estimation: DEA+

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  • Dieter Gstach

    (Department of Economics, Vienna University of Economics & B.A.)

Abstract

The outcome of a production process might not only deviate from a theoretical maximum due to inefficiency, but also because of non-controllable influences. This raises the issue of reliability of Data Envelopment Analysis in noisy environments. I propose to assume an i.i.d. data generating process with bounded noise component, so that the following approach is feasible: Use DEA to estimate a pseudo frontier first (nonparametric shape estimation). Next apply a ML- technique to the DEA-estimated efficiencies, to estimate the scalar value by which this pseudo-frontier must be shifted downward to get the true production frontier (location estimation). I prove, that this approach yields consistent estimates of the true frontier.

Suggested Citation

  • Dieter Gstach, 1996. "A new approach to stochastic frontier estimation: DEA+," Department of Economics Working Papers wuwp039, Vienna University of Economics and Business, Department of Economics.
  • Handle: RePEc:wiw:wiwwuw:wuwp039
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    References listed on IDEAS

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    1. Greene, William H., 1980. "Maximum likelihood estimation of econometric frontier functions," Journal of Econometrics, Elsevier, vol. 13(1), pages 27-56, May.
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    3. SIMAR , Léopold, 1995. "Aspects of Statistical Analysis in DEA-Type Frontier Models," LIDAM Discussion Papers CORE 1995061, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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    6. 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.
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    14. Engelbert Stockhammer & Paul Ramskogler, 2008. "Uncertainty and Exploitation in History," Journal of Economic Issues, Taylor & Francis Journals, vol. 42(1), pages 175-194, March.
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    18. Grafeneder-Weissteiner, Theresa, 2010. "Demographic change, growth and agglomeration," Department of Economics Working Paper Series 132, WU Vienna University of Economics and Business.
    19. Smet, Koen, 2007. "Stuck in the middle? The structure of trade between South Africa and its major trading partners," Department of Economics Working Paper Series 115, WU Vienna University of Economics and Business.
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    More about this item

    Keywords

    Stochastic DEA; Consistency; Semi-Parametric Frontier Estimation; MLE;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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