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Estimating efficiency effects in a panel data stochastic frontier model

Satya Paul () and Sriram Shankar ()
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Sriram Shankar: Australian National University

Journal of Productivity Analysis, 2020, vol. 53, issue 2, No 2, 163-180

Abstract: Abstract This paper proposes a panel data based stochastic frontier model which accommodates time-invariant unobserved heterogeneity along with efficiency effects. The efficiency effects are specified by a standard normal cumulative distribution function of exogenous variables which ensures the efficiency scores to lie in a unit interval. The model is within-transformed and then estimated with non-linear least squares. The finite sample properties of the proposed estimator are investigated through a set of Monte Carlo experiments. The experiments suggest that our estimation procedure generally performs well also in small samples. Finally, an empirical illustration based on widely used panel data on Indian farmers reveals the simplicity and easy applicability of the model.

Keywords: Fixed effects; Stochastic frontier; Technical efficiency; Standard normal cumulative distribution function; Monte Carlo simulations; Non-linear least squares (search for similar items in EconPapers)
JEL-codes: C51 D24 Q12 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1007/s11123-019-00568-3

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