Stochastic Frontier Models With Correlated Error Components

Murray D Smith

No 121, Econometric Society 2004 Australasian Meetings from Econometric Society

Abstract: In the productivity modelling literature, the disturbances U (representing technical inefficiency) and V (representing noise) of the composite error W=V-U of the stochastic frontier model are assumed to be independent random variables. By employing the copula approach to statistical modelling, the joint behaviour of U and V can be parameterised thereby allowing the data the opportunity to determine the adequacy of the independence assumption. In this context, three examples of the copula approach are given: the first is algebraic (the Logistic-Exponential stochastic frontier model with margins bound by the Fairlie-Gumbel-Morgenstern copula) and the second and third are empirically oriented, using data sets well-known in productivity analysis. Analysed are a cross-section of cost data sampled from the US electrical power industry, and an unbalanced panel of data sampled from the US airline industry

Keywords: Stochastic Frontier model; Copula; Copula approach; Sklar's theorem; Families of copulas; Spearman's rho. (search for similar items in EconPapers)
JEL-codes: C21 C23 C51 (search for similar items in EconPapers)
Date: 2004-08-11
New Economics Papers: this item is included in nep-ecm and nep-ets
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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