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The StoNED age: The Departure Into a New Era of Efficiency Analysis? A MC Study Comparing StoNED and the "Oldies" (SFA and DEA)

Author

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  • Andor, Mark
  • Hesse, Frederik

Abstract

Based on the seminal paper of Farrell (1957), researchers have developed several methods for measuring e fficiency. 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 MC Study Comparing StoNED and the "Oldies" (SFA and DEA)," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79849, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc13:79849
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    Cited by:

    1. Laura Di Giorgio & Abraham D Flaxman & Mark W Moses & Nancy Fullman & Michael Hanlon & Ruben O Conner & Alexandra Wollum & Christopher J L Murray, 2016. "Efficiency of Health Care Production in Low-Resource Settings: A Monte-Carlo Simulation to Compare the Performance of Data Envelopment Analysis, Stochastic Distance Functions, and an Ensemble Model," PLOS ONE, Public Library of Science, vol. 11(1), pages 1-20, January.
    2. Mark Andor & Christopher Parmeter, 2017. "Pseudolikelihood estimation of the stochastic frontier model," Applied Economics, Taylor & Francis Journals, vol. 49(55), pages 5651-5661, November.

    More about this item

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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