A generalized inefficiency model with input and output dependence

Mike G. Tsionas

European Journal of Operational Research, 2024, vol. 312, issue 1, 315-323

Abstract: In this paper we propose a general inefficiency model, in the sense that technical inefficiency is, simultaneously, a function of all inputs, outputs, and contextual variables. We recognize that change in inefficiency is endogenous or rational, and we propose an adjustment costs model with firm-specific but unknown adjustment cost parameters. When inefficiency depends on inputs and outputs, the firm's optimization problem changes as the first order conditions must take into account the dependence of inefficiency on the endogenous variables of the problem. The new formulation introduces statistical challenges which are successfully resolved. The model is estimated using Maximum Simulated Likelihood and an empirical application to U.S. banking is provided.

Keywords: Productivity and competitiveness; Adjustment costs; Statistical endogeneity; Maximum Simulated Likelihood (search for similar items in EconPapers)
Date: 2024
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:312:y:2024:i:1:p:315-323

DOI: 10.1016/j.ejor.2023.06.029

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