A solution for multicollinearity in stochastic frontier production function models

Elkin Castano () and Santiago Gallon ()

Revista Lecturas de Economía, 2016, issue 86, 9-23

Abstract: Abstract: This paper considers the problem of collinearity among inputs in a stochastic frontier production model, an issue that has received little attention in the econometric literature. To address this problem, a principal-component-based solution is proposed, which allows carrying out a joint interpretation of technical efficiency and the technology parameters of the model. Applications of the method to simulated and real data show its usability and effective performance. Resumen: Este artículo considera el problema de colinealidad entre insumos en un modelo de producción de frontera estocástica, un tema que ha recibido poca atención en la literatura econométrica. Para abordar el problema, se propone una solución basada en componentes principales que permite interpretar conjuntamente la eficiencia técnica y los parámetros de tecnología del modelo. Los resultados de la aplicación del método con datos simulados y reales muestran que éste es fácil de usar y presenta un buen desempeno

Keywords: stochastic frontier analysis; technical efficiency; productivity; multicollinearity; principal component estimation.análisis de frontera estocástica, eficiencia técnica, productividad, multicolinealidad, estimación de componentes principales (search for similar items in EconPapers)
JEL-codes: C13 C18 C38 D24 O47 (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:col:000174:015393

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