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An improved Afriat–Diewert–Parkan nonparametric production function estimator

O.B. Olesen and J. Ruggiero

European Journal of Operational Research, 2018, vol. 264, issue 3, 1172-1188

Abstract: Recent developments in the production frontier literature include nonparametric estimators with shape constraints. A few of these estimators rely on the Afriat inequalities to provide piecewise linear approximations to the production function/frontier. We show in this paper that these Afriat–Diewert–Parkan (ADP) estimators have deficiencies in the presence of moderate statistical noise including overfitting and a relatively high estimator variance. We propose new estimators with lower variance and a relatively low bias. We consider such alternative estimators based on (weighted) averages of random hinge functions with parameter restrictions. Small sample properties of the estimators are presented that show our new estimators outperform the existing ADP estimators when moderate to large amounts of noise are present.

Keywords: Data envelopment analysis; Concave nonparametric frontier estimators; Stochastic DEA; Model averaging; Hinge functions (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:ejores:v:264:y:2018:i:3:p:1172-1188