Efficiency measurement using a latent class stochastic frontier model

Efficiency estimation in stochastic frontier models typically assumes that the underlying production technology is the same for all firms. There might, however, be unobserved differences in technologies that might be inappropriately labeled as inefficiency if such variations in technology are not ta...

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Bibliographic Details
Published inEmpirical economics Vol. 29; no. 1; pp. 169 - 183
Main Authors Orea, Luis, Kumbhakar, Subal C.
Format Journal Article
LanguageEnglish
Published Heidelberg Springer Nature B.V 01.01.2004
Subjects
Banking industry
Banks
Cost control
Economic efficiency
Economic models
Economics
Empirical tests
Maximum likelihood method
Model testing
Normal distribution
Panel surveys
Production management
Regional banks
Retail banking
Savings banks
Stochastic models
Stochastic processes
Studies
Technology
Spain
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Summary:Efficiency estimation in stochastic frontier models typically assumes that the underlying production technology is the same for all firms. There might, however, be unobserved differences in technologies that might be inappropriately labeled as inefficiency if such variations in technology are not taken into account. We address this issue by estimating a latent class stochastic frontier model in a panel data framework. An application of the model is presented using Spanish banking data. Our results show that bank-heterogeneity can be fully controlled when a model with four classes is estimated. [PUBLICATION ABSTRACT]
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
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ISSN:0377-7332
1435-8921
DOI:10.1007/s00181-003-0184-2