Specification Testing of Production in a Stochastic Frontier Model

Xu Guo, Gao-Rong Li, Michael McAleer and Wing-Keung Wong
Additional contact information
Xu Guo: School of Statistics, Beijing Normal University, Beijing 100875, China
Gao-Rong Li: Beijing Institute for Scientific and Engineering Computing, Beijing University of Technology, Beijing 100124, China

Sustainability, 2018, vol. 10, issue 9, 1-10

Abstract: Parametric production frontier functions are frequently used in stochastic frontier models, but there do not seem to be any empirical test statistics for the plausibility of this application. In this paper, we develop procedures to test whether or not the parametric production frontier functions are suitable. Toward this aim, we developed two test statistics based on local smoothing and an empirical process, respectively. Residual-based wild bootstrap versions of these two test statistics are also suggested. The distributions of technical inefficiency and the noise term are not specified, which allows specification testing of the production frontier function even under heteroscedasticity. Simulation studies and a real data example are presented to examine the finite sample sizes and powers of the test statistics. The theory developed in this paper is useful for production managers in their decisions on production.

Keywords: production frontier function; stochastic frontier model; specification testing; wild bootstrap; smoothing process; empirical process; simulations (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://www.mdpi.com/2071-1050/10/9/3082/pdf (application/pdf)
https://www.mdpi.com/2071-1050/10/9/3082/ (text/html)

Related works:
Working Paper: Specification Testing of Production in a Stochastic Frontier Model (2017)
Working Paper: Specification Testing of Production in a Stochastic Frontier Model (2017)
Working Paper: Specification Testing of Production in a Stochastic Frontier Model (2017)
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:gam:jsusta:v:10:y:2018:i:9:p:3082-:d:166556

Access Statistics for this article

Sustainability is currently edited by Ms. Alexandra Wu

More articles in Sustainability from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().