Profit versus Cost Frontier Estimation of Price and Technical Inefficiency: A Parametric Approach with Panel Data

Scott E. Atkinson and Christopher Cornwell

Southern Economic Journal, 1998, vol. 64, issue 3, 753-764

Abstract: We develop two panel data models, based on the assumption of shadow‐profit maximization, to obtain firm‐specific parametric estimates of allocative, scale, and technical inefficiency. One is a restricted shadow‐profit system with additional equations for quasi‐fixed inputs that allow testing for the efficiency of their utilization. The other is a shadow‐cost system augmented with an equation to capture deviations from marginal‐cost pricing. We show that with the translog functional form, the shadow‐profit system may encounter computational difficulties that the shadow‐cost system avoids. An application of the shadow‐cost system to the U.S. airline industry is provided.

Date: 1998
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https://doi.org/10.1002/j.2325-8012.1998.tb00092.x

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Persistent link: https://EconPapers.repec.org/RePEc:wly:soecon:v:64:y:1998:i:3:p:753-764

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