Estimation of Stochastic Frontier Models with Fixed Effects through Monte Carlo Maximum Likelihood

Grigorios Emvalomatis, Spiro Stefanou and Alfons Oude Lansink

Journal of Probability and Statistics, 2011, vol. 2011, 1-13

Abstract:

Estimation of nonlinear fixed-effects models is plagued by the incidental parameters problem. This paper proposes a procedure for choosing appropriate densities for integrating the incidental parameters from the likelihood function in a general context. The densities are based on priors that are updated using information from the data and are robust to possible correlation of the group-specific constant terms with the explanatory variables. Monte Carlo experiments are performed in the specific context of stochastic frontier models to examine and compare the sampling properties of the proposed estimator with those of the random-effects and correlated random-effects estimators. The results suggest that the estimator is unbiased even in short panels. An application to a cross-country panel of EU manufacturing industries is presented as well. The proposed estimator produces a distribution of efficiency scores suggesting that these industries are highly efficient, while the other estimators suggest much poorer performance.

Date: 2011
References: Add references at CitEc
Citations:

Downloads: (external link)
http://downloads.hindawi.com/journals/JPS/2011/568457.pdf (application/pdf)
http://downloads.hindawi.com/journals/JPS/2011/568457.xml (text/xml)

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:hin:jnljps:568457

DOI: 10.1155/2011/568457

Access Statistics for this article

More articles in Journal of Probability and Statistics from Hindawi
Bibliographic data for series maintained by Mohamed Abdelhakeem ().