Wrong skewness and finite sample correction in the normal-half normal stochastic frontier model

Jun Cai, Qu Feng, William Horrace and Guiying Wu ()
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Jun Cai: Huazhong University of Science and Technology

Empirical Economics, 2021, vol. 60, issue 6, No 7, 2837-2866

Abstract: Abstract In parametric stochastic frontier models, the composed error is specified as the sum of a two-sided noise component and a one-sided inefficiency component, which is usually assumed to be half-normal, implying that the error distribution is skewed in one direction. In practice, however, estimation residuals may display skewness in the wrong direction. Model respecification or pulling a new sample is often prescribed. Since wrong skewness may manifest as a finite sample problem, this paper proposes a finite sample adjustment to existing estimators to obtain the desired direction of residual skewness. This provides an alternative empirical approach to deal with the wrong skewness problem that does not require respecification of the model.

Keywords: Stochastic frontier model; Skewness; MLE; Constrained estimators; BIC (search for similar items in EconPapers)
JEL-codes: C13 C23 D24 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (7)

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DOI: 10.1007/s00181-020-01988-z

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