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Robust estimation of cost efficiency in non-parametric frontier models

Author

Listed:
  • Galina Besstremyannaya

    (CEFIR at New Economic School)

  • Jaak Simm

    (University of Leuven)

  • Sergei Golovan

    (New Economic School)

Abstract

The paper proposes a bootstrap methodology for robust estimation of cost efficiency in data envelopment analysis. Our algorithm re-samples "naive" input-oriented efficiency scores, rescales original inputs to bring them to the frontier, and then re-estimates cost efficiency scores for the rescaled inputs. We consider the cases with absence and presence of environmental variables. Simulation analyses with multi-input multi-output production function demonstrate consistency of the new algorithm in terms of the coverage of the confidence intervals for true cost efficiency. Finally, we offer real data estimates for Japanese banking industry. Using the nationwide sample of Japanese banks in 2009, we show that the bias of cost efficiency scores may be linked to the bank charter and the presence of the environmental variables in the model. A package `rDEA', developed in the R language, is available from the GitHub and CRAN repository.

Suggested Citation

  • Galina Besstremyannaya & Jaak Simm & Sergei Golovan, 2017. "Robust estimation of cost efficiency in non-parametric frontier models," Working Papers w0244, Center for Economic and Financial Research (CEFIR).
    • Handle: RePEc:cfr:cefirw:w0244
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    File URL: http://www.cefir.ru/papers/WP244.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    data envelopment analysis; cost efficiency; bias; bootstrap; banking;
    All these keywords.

    JEL classification:

    • C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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