Unknown latent structure and inefficiency in panel stochastic frontier models

Levent Kutlu, Kien Tran and Mike Tsionas

Journal of Productivity Analysis, 2020, vol. 54, issue 1, No 6, 75-86

Abstract: Abstract This paper extends the fixed effect panel stochastic frontier models to allow group heterogeneity in the slope coefficients. We propose the first-difference penalized maximum likelihood (FDPML) and control function penalized maximum likelihood (CFPML) methods for classification and estimation of latent group structures in the frontier as well as inefficiency. Monte Carlo simulations show that the proposed approach performs well in finite samples. An empirical application is presented to show the advantages of data-determined identification of the heterogeneous group structures in practice.

Keywords: Classification; Fixed effect; Group heterogeneity; Panel stochastic frontier; Penalized control function maximum likelihood; Penalized first-difference maximum likelihood. (search for similar items in EconPapers)
JEL-codes: C13 C23 C36 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (5)

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DOI: 10.1007/s11123-020-00584-8

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