A zero inefficiency stochastic frontier model

Subal Kumbhakar, Christopher Parmeter and Mike Tsionas

Journal of Econometrics, 2013, vol. 172, issue 1, 66-76

Abstract: 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.

Keywords: Full efficiency; Zero-inefficiency; Mixture; Banking (search for similar items in EconPapers)
JEL-codes: C13 C23 C33 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (45)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:172:y:2013:i:1:p:66-76

DOI: 10.1016/j.jeconom.2012.08.021

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