Estimating Nonparametric Conditional Frontiers and Efficiencies: A New Approach

Camilla Mastromarco, Leopold Simar and Ingrid Van Keilegom ()
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Camilla Mastromarco: University of Calabria
Ingrid Van Keilegom: KU Leuven

No 2025003, LIDAM Reprints ISBA from Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA)

Abstract: In production theory, conditional frontiers and conditional efficiency measures are flexible and appealing tools to investigate the role of environmental variables on the production process. Direct approaches estimate non-parametrically conditional distribution functions requiring smoothing techniques and the use of bandwidths. Traditional methods for selecting bandwidths provide bandwidths with order that may not be optimal when estimating the boundary of the distribution function. In this paper we suggest an approach that avoids this problem, by eliminating in a first step, with flexible control functions, the influence of the environmental factors on the inputs and the outputs. By doing this we produce “pure” inputs and outputs which allow to estimate a “pure” measure of efficiency, more reliable for ranking the firms, since the influence of the external factors have been eliminated. We are also able to recover the frontier and efficiencies in original units. This can be viewed as an extension of location-scale models for whitening the variables, avoiding often inappropriate restrictions. We describe the method, its statistical properties and we show in some Monte-Carlo simulations, how our new method dominates both the traditional direct and the location-scale approaches. We illustrate the usefulness of the approach with a real data set on banks.

Keywords: Nonparametric frontier models; Environmental factors; Conditional efficiency; Robust estimation of frontiers (search for similar items in EconPapers)
JEL-codes: C13 C14 C49 (search for similar items in EconPapers)
Pages: 25
Date: 2025-01-01
Note: In: The Econometrics Journal, 2025, vol. 28(3), p. 502-528
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Working Paper: Estimating Nonparametric Conditional Frontiers and Efficiencies: A New Approach (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:aiz:louvar:2025003

DOI: 10.1093/ectj/utae025

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