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The StoNED Age: The Departure Into a New Era of Efficiency Analysis? – A Monte Carlo Comparison of StoNED and the "Oldies" (SFA and DEA)

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  • Andor, Mark
  • Hesse, Frederik

Abstract

Based on the seminal paper of Farrell (1957), researchers have developed several methods for measuring effi ciency. Nowadays, the most prominent representatives are nonparametric data envelopment analysis (DEA) and parametric stochastic frontier analysis (SFA), both introduced in the late 1970s. Researchers have been attempting to develop a method which combines the virtues - both nonparametric and stochastic - of these 'oldies'. The recently introduced Stochastic non-smooth envelopment of data (StoNED) by Kuosmanen and Kortelainen (2010) is such a promising method. This paper compares the StoNED method with the two 'oldies' DEA and SFA and extends the initial Monte Carlo simulation of Kuosmanen and Kortelainen (2010) in several directions. We show, among others, that, in scenarios without noise, the rivalry is still between the 'oldies', while in noisy scenarios, the nonparametric StoNED PL now constitutes a promising alternative to the SFA ML.

Suggested Citation

  • Andor, Mark & Hesse, Frederik, 2013. "The StoNED Age: The Departure Into a New Era of Efficiency Analysis? – A Monte Carlo Comparison of StoNED and the "Oldies" (SFA and DEA)," Ruhr Economic Papers 394, RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen.
    • Handle: RePEc:zbw:rwirep:394
    DOI: 10.4419/86788449
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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • D2 - Microeconomics - - Production and Organizations
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • Q4 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy

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