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Estimating Stochastic Ray Production Frontiers

Mike Tsionas, Marwan Izzeldin (), Arne Henningsen and Evaggelos Paravalos ()
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Marwan Izzeldin: Department of Economics, Lancaster University Management School
Evaggelos Paravalos: Department of Economics, Athens University of Economics and Business (Greece)

No 2019/06, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

Abstract: In this paper, we consider the stochastic ray production function that has been revived recently by Henningsen et al. (2017). We use a profit-maximizing framework to resolve endogeneity problems that are likely to arise, as in all distance functions, and we derive the system of equations after incorporating technical inefficiency. As technical inefficiency enters non-trivially into the system of equations and the Jacobian is highly complicated, we propose Monte Carlo methods of inference. We illustrate the new approach using US banking data and we also address the problems of missing prices and selection of ordering for outputs.

Keywords: Stochastic ray production frontier; Technical inefficiency; Profit maximization; Bayesian inference (search for similar items in EconPapers)
JEL-codes: C11 C13 D24 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2019-09
New Economics Papers: this item is included in nep-ecm, nep-eff and nep-ore
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