Alternative Technical Efficiency Measures: Skew, Bias, and Scale

Qu Feng and William Horrace

No 121, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: In the fixed-effects stochastic frontier model an efficiency measure relative to the best firm in the sample is universally employed. This paper considers a new measure relative to the worst firm in the sample. We find that estimates of this measure have smaller bias than those of the traditional measure when the sample consists of many firms near the efficient frontier. Moreover, a two-sided measure relative to both the best and the worst firms is proposed. Simulations suggest that the new measures may be preferred depending on the skewness of the inefficiency distribution and the scale of efficiency differences.

Keywords: stochastic frontier model; relative efficiency measure; two-sided measure; bias; bootstrap confidence intervals (search for similar items in EconPapers)
JEL-codes: C15 C23 D24 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2010-03
New Economics Papers: this item is included in nep-eff and nep-sea
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Citations: View citations in EconPapers (7)

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Journal Article: Alternative technical efficiency measures: Skew, bias and scale (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:121

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