Normal-beta exponential stochastic frontier model: Maximum simulated likelihood approach

Misgan Desale Nigusie ()
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Misgan Desale Nigusie: Bahir Dar University

Portuguese Economic Journal, 2024, vol. 23, issue 3, No 7, 489-504

Abstract: Abstract This paper considers the beta exponential distribution as a distribution function of inefficacy score in a stochastic frontier model. The beta exponential distribution is a three-parameter distribution, and it is more flexible than commonly used probability density functions in a stochastic frontier model (SFM). This new model, a “Normal-Beta Exponential SFM”, nests another five SFMs. This paper presents a simulated log-likelihood function and simulated inefficiency estimator of a normal-beta exponential SFM, a closed form log-likelihood function and closed form inefficiency estimator of a normal-weighted exponential SFM, and an empirical study using a normal-beta exponential SFM. In our empirical study, we have used a likelihood ratio test to compare the performance of SFMs and a normal-beta exponential SFM fits the data better than other nested special case SFMs. Furthermore, the empirical result shows that parameters of a normal-beta exponential SFM can be estimated with less standard error or high certainty than a normal-gamma SFM.

Keywords: Beta exponential distribution; Stochastic frontier model; Simulated likelihood; Halton sequences (search for similar items in EconPapers)
JEL-codes: C1 C2 C5 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s10258-023-00247-0

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