IDEAS home Printed from https://ideas.repec.org/a/taf/recsxx/v22y2019i1p60-85.html
   My bibliography  Save this article

A comparison of parametric and nonparametric estimation methods for cost frontiers and economic measures

Author

Listed:
  • Bryon J. Parman
  • Allen M. Featherstone

Abstract

This article examines the empirical performance of alternative frontier estimators’ ability to replicate a known underlying technology and economic measures such as multi-product and product-specific economies of scale, and economies of scope. A cross sectional Monte Carlo procedure to simulate data is used to evaluate a two-sided error system, an OLS system restricting errors to be above the cost frontier, the stochastic frontier method, and data envelopment analysis (DEA). The data are generated assuming a half-normal distribution, and a uniform distribution. Data were also simulated with single and two output firms. The DEA estimator was most robust in estimating the “true” cost frontier and associated economic measures including data sets without single output firms and less effected by distributional assumptions.

Suggested Citation

  • Bryon J. Parman & Allen M. Featherstone, 2019. "A comparison of parametric and nonparametric estimation methods for cost frontiers and economic measures," Journal of Applied Economics, Taylor & Francis Journals, vol. 22(1), pages 60-85, January.
  • Handle: RePEc:taf:recsxx:v:22:y:2019:i:1:p:60-85
    DOI: 10.1080/15140326.2018.1526868
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/15140326.2018.1526868
    Download Restriction: Access to full text is restricted to subscribers.

    File URL: https://libkey.io/10.1080/15140326.2018.1526868?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Jean-Paul Chavas & Bradford Barham & Jeremy Foltz & Kwansoo Kim, 2012. "Analysis and decomposition of scope economies: R&D at US research universities," Applied Economics, Taylor & Francis Journals, vol. 44(11), pages 1387-1404, April.
    2. Afriat, Sidney N, 1972. "Efficiency Estimation of Production Function," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(3), pages 568-598, October.
    3. 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.
    4. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    5. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    6. Lusk, Jayson L. & Featherstone, Allen M. & Marsh, Thomas L. & Abdulkadri, Abdullahi O., 1997. "Empirical properties of duality theory," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 46(1), pages 1-24.
    7. Banker, Rajiv D & Maindiratta, Ajay, 1988. "Nonparametric Analysis of Technical and Allocative Efficiencies in Production," Econometrica, Econometric Society, vol. 56(6), pages 1315-1332, November.
    8. 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.
    9. Chavas, Jean-Paul & Aliber, Michael, 1993. "An Analysis Of Economic Efficiency In Agriculture: A Nonparametric Approach," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 18(1), pages 1-16, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Noah J Miller & Jason S Bergtold & Allen M Featherstone, 2019. "Economic elasticities of input substitution using data envelopment analysis," PLOS ONE, Public Library of Science, vol. 14(8), pages 1-15, August.
    2. Chia-Nan Wang & Minh Nhat Nguyen & Anh Luyen Le & Hector Tibo, 2020. "A DEA Resampling Past-Present-Future Comparative Analysis of the Food and Beverage Industry: The Case Study on Thailand vs. Vietnam," Mathematics, MDPI, vol. 8(7), pages 1-24, July.
    3. Ahn, Heinz & Clermont, Marcel & Langner, Julia, 2023. "Comparative performance analysis of frontier-based efficiency measurement methods – A Monte Carlo simulation," European Journal of Operational Research, Elsevier, vol. 307(1), pages 294-312.
    4. Russell, Levi A. & Briggeman, Brian C. & Featherstone, Allen M., 2013. "Debt and Input Misallocation in Farm Supply and Marketing Cooperatives: A DEA Approach," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150445, Agricultural and Applied Economics Association.
    5. Matheus Koengkan & José Alberto Fuinhas & Emad Kazemzadeh & Fariba Osmani & Nooshin Karimi Alavijeh, 2022. "Measuring the economic efficiency performance in Latin American and Caribbean countries: An empirical evidence from stochastic production frontier and data envelopment analysis," International Economics, CEPII research center, issue 169, pages 43-54.
    6. Rita, Rui & Marques, Vitor & Bárbara, Diogo & Chaves, Inês & Macedo, Pedro & Moutinho, Victor & Pereira, Mariana, 2023. "Crossing non-parametric and parametric techniques for measuring the efficiency: Evidence from 65 European electricity Distribution System Operators," Energy, Elsevier, vol. 283(C).
    7. Kao, Chiang & Pang, Rui-Zhi & Liu, Shiang-Tai & Bai, Xue-Jie, 2021. "Optimal expansion paths for hospitals of different types: Viewpoint of scope economies and evidence from Chinese hospitals," European Journal of Operational Research, Elsevier, vol. 289(2), pages 628-638.
    8. Roman Neyter & Oleg Nivievskyi, 2023. "Effect of subsidies on farms' exit decision," Agribusiness, John Wiley & Sons, Ltd., vol. 39(4), pages 941-959, October.
    9. Ben Amor, Tawfik & Mellah, Thuraya, 2023. "Cost efficiency of Tunisian water utility districts: Does heterogeneity matter?," Utilities Policy, Elsevier, vol. 84(C).
    10. Madhav Regmi & Allen M. Featherstone & Cortney A. Cowley & Mykel R. Taylor, 2021. "Big Banks versus Agricultural Banks: Has Too‐Big‐To‐Fail Regulation Affected Efficiency and Scale Economies Measures?," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(3), pages 1164-1178, May.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Luis R. Murillo‐Zamorano, 2004. "Economic Efficiency and Frontier Techniques," Journal of Economic Surveys, Wiley Blackwell, vol. 18(1), pages 33-77, February.
    2. Coelli, Tim J., 1995. "Recent Developments In Frontier Modelling And Efficiency Measurement," Australian Journal of Agricultural Economics, Australian Agricultural and Resource Economics Society, vol. 39(3), pages 1-27, December.
    3. Mai, Nhat Chi, 2015. "Efficiency of the banking system in Vietnam under financial liberalization," OSF Preprints qsf6d, Center for Open Science.
    4. Kuosmanen, Timo & Johnson, Andrew, 2017. "Modeling joint production of multiple outputs in StoNED: Directional distance function approach," European Journal of Operational Research, Elsevier, vol. 262(2), pages 792-801.
    5. Caitlin O’Loughlin & Léopold Simar & Paul W. Wilson, 2023. "Methodologies for assessing government efficiency," Chapters, in: António Afonso & João Tovar Jalles & Ana Venâncio (ed.), Handbook on Public Sector Efficiency, chapter 4, pages 72-101, Edward Elgar Publishing.
    6. Macedo, Pedro & Scotto, Manuel, 2014. "Cross-entropy estimation in technical efficiency analysis," Journal of Mathematical Economics, Elsevier, vol. 54(C), pages 124-130.
    7. Sickles, Robin C. & Song, Wonho & Zelenyuk, Valentin, 2018. "Econometric Analysis of Productivity: Theory and Implementation in R," Working Papers 18-008, Rice University, Department of Economics.
    8. Parman, Bryon & Featherstone, Allen & Coffey, Brian, 2015. "Is Efficiency Analysis All There Is With Data Envelopment Analysis," Working Papers 197532, Mississippi State University, Department of Agricultural Economics.
    9. Cristina Polo & Julián Ramajo & Alejandro Ricci‐Risquete, 2021. "A stochastic semi‐non‐parametric analysis of regional efficiency in the European Union," Regional Science Policy & Practice, Wiley Blackwell, vol. 13(1), pages 7-24, February.
    10. Per J. Agrell & Mehdi Farsi & Massimo Filippini & Martin Koller, 2013. "Unobserved heterogeneous effects in the cost efficiency analysis of electricity distribution systems," Working Papers 0038, Swiss Economics.
    11. B.C. Okoye & A. Abass & B. Bachwenkizi & G. Asumugha & B. Alenkhe & R. Ranaivoson & R. Randrianarivelo & N. Rabemanantsoa & I. Ralimanana, 2016. "Differentials in technical efficiency among smallholder cassava farmers in Central Madagascar: A Cobb Douglas stochastic frontier production approach," Cogent Economics & Finance, Taylor & Francis Journals, vol. 4(1), pages 1143345-114, December.
    12. Zhong, Shen & Li, Junwei & Chen, Xi & Wen, Hongmei, 2022. "A multi-hierarchy meta-frontier approach for measuring green total factor productivity: An application of pig breeding in China," Socio-Economic Planning Sciences, Elsevier, vol. 81(C).
    13. Olesen, O. B., 1995. "Some unsolved problems in data envelopment analysis: A survey," International Journal of Production Economics, Elsevier, vol. 39(1-2), pages 5-36, April.
    14. Léopold Simar & Paul W. Wilson, 2015. "Statistical Approaches for Non-parametric Frontier Models: A Guided Tour," International Statistical Review, International Statistical Institute, vol. 83(1), pages 77-110, April.
    15. Blazek, David & Sickles, Robin C., 2010. "The impact of knowledge accumulation and geographical spillovers on productivity and efficiency: The case of U. S. shipbuilding during WWII," Economic Modelling, Elsevier, vol. 27(6), pages 1484-1497, November.
    16. Kanter, Christopher A. & Hueth, Brent & Gould, Brian W., 2013. "A Comparative Efficiency Analysis of Cooperative and Non-cooperative Dairy Manufacturing Firms," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150497, Agricultural and Applied Economics Association.
    17. Keshvari, Abolfazl & Kuosmanen, Timo, 2013. "Stochastic non-convex envelopment of data: Applying isotonic regression to frontier estimation," European Journal of Operational Research, Elsevier, vol. 231(2), pages 481-491.
    18. Sickles, Robin C. & Hao, Jiaqi & Shang, Chenjun, 2015. "Panel Data and Productivity Measurement," Working Papers 15-018, Rice University, Department of Economics.
    19. Timo Kuosmanen & Andrew L. Johnson, 2010. "Data Envelopment Analysis as Nonparametric Least-Squares Regression," Operations Research, INFORMS, vol. 58(1), pages 149-160, February.
    20. Sickles, Robin C., 2005. "Panel estimators and the identification of firm-specific efficiency levels in parametric, semiparametric and nonparametric settings," Journal of Econometrics, Elsevier, vol. 126(2), pages 305-334, June.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:recsxx:v:22:y:2019:i:1:p:60-85. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/recs .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.