A Laplace Stochastic Frontier Model

William Horrace and Christopher Parmeter

No 166, Center for Policy Research Working Papers from Center for Policy Research, Maxwell School, Syracuse University

Abstract: We propose a Laplace stochastic frontier model as an alternative to the traditional model with normal errors. An interesting feature of the Laplace model is that the distribution of inefficiency conditional on the composed error is constant for positive values of the composed error, but varies for negative values. Therefore, it may be ideally suited for analyzing industries with many forms on or close to the efficient frontier. A simulation study suggests that the model performs well relative to the normal-exponential model when the two-sided error is misspecified. A brief application to US Airlines is provided.

Keywords: Stochastic frontier; efficient estimation (search for similar items in EconPapers)
JEL-codes: C12 C16 C44 D24 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2014-04
New Economics Papers: this item is included in nep-ecm and nep-eff
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Citations: View citations in EconPapers (2)

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Journal Article: A Laplace stochastic frontier model (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:max:cprwps:166

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