Dissections of input and output efficiency: A generalized stochastic frontier model

Subal Kumbhakar and Mike Tsionas

International Journal of Production Economics, 2021, vol. 232, issue C

Abstract: This paper considers a model that accommodates both output and input-specific inefficiency components (input slacks). We use a translog function to represent the underlying production technology in which the input slacks are generalized to have both deterministic (functions of exogenous variables) and stochastic components. Consequently, the composed error term becomes a nonlinear function of several error components, viz., a one-sided input slack vector (the dimension of which depends on the number of inputs), a one-sided output technical inefficiency and a two-sided random noise. Identification of two sets of one-sided errors is possible in a translog model because the vector of one-sided input slacks appears in additive form as well as interactively with the (log) inputs. Distributional assumptions on technical inefficiency and slacks also help in identification. Bayesian inference techniques are introduced, organized around Markov Chain Monte Carlo, especially the Gibbs sampler with data augmentation, to estimate these inefficiency components. For an empirical application we use a large unbalanced panel of the U.K. manufacturing firms. Slacks associated with labor and capital are found to be 2.35% and 10.74%, on average. Output (revenue) loss from technical inefficiency is, on average, 2.43%, while revenue loss from input slacks is, on average, 9.2%.

Keywords: Input and output inefficiency; X-efficiency; Markov chain Monte Carlo; Endogeneity; Nonlinear error components (search for similar items in EconPapers)
JEL-codes: C11 C13 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0925527320302930
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:proeco:v:232:y:2021:i:c:s0925527320302930

DOI: 10.1016/j.ijpe.2020.107940

Access Statistics for this article

International Journal of Production Economics is currently edited by Stefan Minner

More articles in International Journal of Production Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().