Consistent estimation of technical and allocative efficiencies for a semiparametric stochastic cost frontier with shadow input prices

Tai-Hsin Huang (), Kuan-Chen Chen (), Chien-Hsiu Lin () and Ming-Tai Chung ()

Journal of Productivity Analysis, 2014, vol. 41, issue 2, 307-320

Abstract: Conventional parametric stochastic cost frontier models are likely to suffer from biased inferences due to misspecification and the ignorance of allocative efficiency (AE). To fill up the gap in the literature, this article proposes a semiparametric stochastic cost frontier with shadow input prices that combines a parametric portion with a nonparametric portion and that allows for the presence of both technical efficiency (TE) and AE. The introduction of AE and the nonparametric function into the cost function complicates substantially the estimation procedure. We develop a new estimation procedure that leads to consistent estimators and valid TE and AE measures, which are proved by conducting Monte Carlo simulations. Copyright Springer Science+Business Media, LLC 2014

Keywords: Semiparametric cost frontier; Monte Carlo simulations; Shadow prices; Technical efficiency; Allocative efficiency; C14; C15; C33; G21 (search for similar items in EconPapers)
Date: 2014
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DOI: 10.1007/s11123-012-0316-9

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