Noise vs Inefficiency. Evidence from Mass Transit

Philippe Vanden Eeckaut and Pierre Wunsch
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Pierre Wunsch: CORE, Université catholique de Louvain, B-1348 Louvain-la-Neuve, Belgium

No 1994051, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: This paper was motivated by troubling empirical results. The data are time-series from a mass transit company in Brussels. Previous studies, based on a deterministic (non-parametric) method, had found ample evidence of inefficiencies for many observations. These are not spotted by the classical Aigner-Lovell-Schmidt stochastic model. Our knowledge of the firm leads us to believe that the deterministic model gives, in this case, a more accurate picture of reality. The failure of the A.L.S. model in our example motivates us to comment on the modelling of inefficiency in the frontier analysis literature. Our investigation leaves us with the feeling that there may be many relevant cases for which the stochastic model as proposed today is inappropriate. The problems identified are likely to be worse for time-series but are probably also relevant for cross-sections.

Date: 1994-10-01
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