Dynamic Model Explaining the Asymmetric Distribution of Deviations from the Production Frontier

Akio Torii
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Akio Torii: Chuo University, Institute of Economic Research

Chapter Chapter 3 in Production Efficiency with the Stochastic Management Model, 2026, pp 69-93 from Springer

Abstract: Abstract In this chapter, we construct stochastic process models where the degree of inefficiency of each establishment fluctuates probabilistically, providing an explanation for the distribution assumed for technical inefficiency. These models demonstrate that distributions commonly assumed in SFA, such as the half-normal distribution, can be understood as stationary distributions resulting from stochastic processes. Adjustments to parameters such as demand structure, cost structure, and discount rate allow for the explanation of a diverse set of stationary distributions. Furthermore, constructing various stochastic process models allows us to describe different distributions of technical inefficiency as stationary distributions. In doing so, we can examine how the characteristics of the mechanism generating technical inefficiency are reflected in the statistical properties of these distributions.

Date: 2026
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-981-95-3501-9_3

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DOI: 10.1007/978-981-95-3501-9_3

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