A solution for multicollinearity in stochastic frontier production function models

Elkin Castaño () and Santiago Gallón ()
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Elkin Castaño: Universidad de Antioquia
Santiago Gallón: Universidad de Antioquia

Lecturas de Economía, 2017, issue 86, 9-23

Abstract: This paper considers the problem of collinearity among inputs in a stochastic frontier production model, an issue that has received little attention in the econometric literature. To address this problem, a principal-component-based solution is proposed, which allows carrying out a joint interpretation of technical efficiency and the technology parameters of the model. Applications of the method to simulated and real data show its usability and effective performance

Keywords: stochastic frontier analysis; technical efficiency; productivity; multicollinearity; principal component estimation (search for similar items in EconPapers)
JEL-codes: C13 C18 C38 D24 O47 (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:lde:journl:y:2017:i:86:p:9-23

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DOI: 10.17533/udea.le.n86a01

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