Feasible Estimation of Firm-Specific Allocative Inefficiency through Bayesian Numerical Methods

Scott Atkinson and Jeffrey Dorfman (jhdorfman@ncsu.edu)

No 19402, 2005 Annual meeting, July 24-27, Providence, RI from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: The estimation of allocative and technical inefficiency has grown to an enormous body of literature, both theoretical and empirical. Ideally, one would estimate time-varying firm and input-specific parameters describing allocative inefficiency in order to minimize aggregation bias. However, this has never been previously accomplished. Typically, only industry-wide allocative efficiency parameters have been empirically identified. Our proposed solution is to employ Gibbs sampling to approximate posterior distributions from a Bayesian limited information model, embedding GMM moment conditions imposed via an instrumental variables step to obtain plant-specific parameters estimates that vary flexibly over time. For a panel of Chilean hydroelectric power plants, posterior distributions of these estimates display substantial differences in location and precision. By contrast, the standard GMM approach which produces industry-wide, time-varying allocative inefficiency parameters, not only fails to reveal the inter-plant differences by construction, but does not even produce posterior medians that approximate a weighted average of the plant-specific posterior medians.

Keywords: Research; Methods/Statistical; Methods (search for similar items in EconPapers)
Pages: 38
Date: 2005
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Feasible estimation of firm-specific allocative inefficiency through Bayesian numerical methods (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea05:19402

DOI: 10.22004/ag.econ.19402

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