On the distribution of estimated technical efficiency in stochastic frontier models

Wei Siang Wang and Peter Schmidt

Journal of Econometrics, 2009, vol. 148, issue 1, 36-45

Abstract: We consider a stochastic frontier model with error [epsilon]=v-u, where v is normal and u is half normal. We derive the distribution of the usual estimate of u,E(u[epsilon]). We show that as the variance of v approaches zero, E(u[epsilon])-u converges to zero, while as the variance of v approaches infinity, E(u[epsilon]) converges to E(u). We graph the density of E(u[epsilon]) for intermediate cases. To show that E(u[epsilon]) is a shrinkage of u towards its mean, we derive and graph the distribution of E(u[epsilon]) conditional on u. We also consider the distribution of estimated inefficiency in the fixed-effects panel data setting.

Keywords: Stochastic; frontier; Technical; inefficiency; Estimated; inefficiency (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (29)

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Related works:
Working Paper: On The Distribution of Estimated Technical Efficiency in Stochastic Frontier Models (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:econom:v:148:y:2009:i:1:p:36-45

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