A zero inefficiency stochastic frontier model

Traditional stochastic frontier models impose inefficient behavior on all firms in the sample of interest. If the data under investigation represent a mixture of both fully efficient and inefficient firms then off-the-shelf frontier models are statistically inadequate. We introduce the zero ineffici...

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Published inJournal of econometrics Vol. 172; no. 1; pp. 66 - 76
Main Authors Kumbhakar, Subal C., Parmeter, Christopher F., Tsionas, Efthymios G.
Format Journal Article
LanguageEnglish
Published Amsterdam Elsevier B.V 01.01.2013
Elsevier Sequoia S.A
Subjects
Banking
Business conditions
Econometrics
Economic models
Estimation
Full efficiency
Mathematical models
Mixture
Probability theory
Stochastic models
Studies
Zero-inefficiency
C33
C13
C23
Banking
Zero-inefficiency
Full efficiency
Mixture
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Summary:Traditional stochastic frontier models impose inefficient behavior on all firms in the sample of interest. If the data under investigation represent a mixture of both fully efficient and inefficient firms then off-the-shelf frontier models are statistically inadequate. We introduce the zero inefficiency stochastic frontier model which can accommodate the presence of both efficient and inefficient firms in the sample. We derive the corresponding log-likelihood function, conditional mean of inefficiency, to estimate observation-specific inefficiency and discuss testing for the presence of fully efficient firms. We provide both simulated evidence as well as an empirical example which demonstrates the applicability of the proposed method.
Bibliography:ObjectType-Article-2
SourceType-Scholarly Journals-1
ObjectType-Feature-1
content type line 23
ISSN:0304-4076
1872-6895
DOI:10.1016/j.jeconom.2012.08.021