Modelling a stochastic profit system using gauge function

Yongseung Han ()

Applied Economics Letters, 2012, vol. 19, issue 9, 823-827

Abstract: This article provides an analytical solution to the ‘Greene problem’; use of McFadden's gauge function successfully separates technical inefficiency from the profit function and its share equations, even though allocative inefficiency is incorporated into the profit system, and establishes an exact relationship between allocative inefficiency in the profit function and its share equations to make the system readily estimable.

Date: 2012
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DOI: 10.1080/13504851.2011.605754

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