Robust nonparametric frontier estimation in two steps

Yining Chen, Hudson S. Torrent and Flavio A. Ziegelmann

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We propose a robust methodology for estimating production frontiers with multi-dimensional input via a two-step nonparametric regression, in which we estimate the level and shape of the frontier before shifting it to an appropriate position. Our main contribution is to derive a novel frontier estimation method under a variety of flexible models which is robust to the presence of outliers and possesses some inherent advantages over traditional frontier estimators. Our approach may be viewed as a simplification, yet a generalization, of those proposed by Martins-Filho and coauthors, who estimate frontier surfaces in three steps. In particular, outliers, as well as commonly seen shape constraints of the frontier surfaces, such as concavity and monotonicity, can be straightforwardly handled by our estimation procedure. We show consistency and asymptotic distributional theory of our resulting estimators under standard assumptions in the multi-dimensional input setting. The competitive finite-sample performances of our estimators are highlighted in both simulation studies and empirical data analysis.

Keywords: concavity; local polynomial smoothing; monotonicity; outlier detection; shape-constrained regression; Concavity (search for similar items in EconPapers)
JEL-codes: C14 C20 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2023-07-03
New Economics Papers: this item is included in nep-ecm and nep-eff
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Published in Econometric Reviews, 3, July, 2023, 42(7), pp. 612 - 634. ISSN: 0747-4938

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119389

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