Interpreting and testing the scaling property in models where inefficiency depends on firm characteristics
Antonio Alvarez and
No 520, Econometric Society 2004 Far Eastern Meetings from Econometric Society
In this paper, we are interested in a stochastic frontier model in which observable characteristics of the firms affect their levels of technical inefficiency. Let u â‰¥ 0 be the one-sided error reflecting technical inefficiency, and let z be a set of variables that affect u. We write u as u(z,Î´) to reflect its dependence on z and some parameters Î´. Various models in the existing literature specify the distribution of u(z,Î´). We are interested in models that satisfy the scaling property, which says that u(z,Î´) can be written as a scaling function h(z, Î´) times a random variable u* that does not depend on z. This property implies that changes in z affect the scale but not the shape of u(z,Î´). This paper reviews the existing literature and identifies models that do and do not have the scaling property. It also discusses practical advantages of the scaling property. The scaling property is argued to be intuitively appealing; it allows estimation by nonlinear least squares; it allows a distribution-free interpretation of the parameters Î´ that show how z affects inefficiency; and it underlies the model of Battese and Coelli, Journal of Productivity Analysis, 1992, which is currently the only model to allow correlation over time when inefficiency depends on firm characteristics. The paper shows how to test the hypothesis of scaling, and other interesting hypotheses, in the context of the model of Wang, Journal of Productivity Analysis, 2002. Finally, two empirical examples are given.
Keywords: stochastic frontier; scaling property; technical inefficiency (search for similar items in EconPapers)
JEL-codes: C12 C21 C51 (search for similar items in EconPapers)
References: Add references at CitEc
Citations: Track citations by RSS feed
There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.
Journal Article: Interpreting and Testing the Scaling Property in Models where Inefficiency Depends on Firm Characteristics (2006)
Working Paper: Interpreting and Testing the Scaling Property in Models where Inefficiency Depends on Firm Characteristics (2005)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:ecm:feam04:520
Access Statistics for this paper
More papers in Econometric Society 2004 Far Eastern Meetings from Econometric Society Contact information at EDIRC.
Bibliographic data for series maintained by Christopher F. Baum ().