Efficiency measurement using a latent class stochastic frontier model

Luis Orea and Subal Kumbhakar

Empirical Economics, 2004, vol. 29, issue 1, 169-183

Abstract: Efficiency estimation in stochastic frontier models typically assumes that the underlying production technology is the same for all firms. There might, however, be unobserved differences in technologies that might be inappropriately labeled as inefficiency if such variations in technology are not taken into account. We address this issue by estimating a latent class stochastic frontier model in a panel data framework. An application of the model is presented using Spanish banking data. Our results show that bank-heterogeneity can be fully controlled when a model with four classes is estimated. Copyright Springer-Verlag 2004

Keywords: Stochastic cost frontier; latent class model; panel data; banks; C24; C81; D24 (search for similar items in EconPapers)
Date: 2004
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Citations: View citations in EconPapers (228)

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DOI: 10.1007/s00181-003-0184-2

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Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

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