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A Ray-Based Input Distance Function to Model Zero-Valued Output Quantities: Derivation and an Empirical Application

Juan José Price () and Arne Henningsen
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Juan José Price: Business School, Universidad Adolfo Ibáñez

No 2022/03, IFRO Working Paper from University of Copenhagen, Department of Food and Resource Economics

Abstract: We derive and empirically apply an input-oriented distance function based on the stochastic ray production function suggested by Löthgren (1997, 2000). We show that the derived ray-based input distance function is suitable for modeling production technologies based on logarithmic functional forms (e.g., Cobb-Douglas and Translog) when control over inputs is greater than control over outputs and when some productive entities do not produce the entire set of outputs — two situations that are jointly present in various economic sectors. We also address a weakness of the stochastic ray function, namely its sensitivity to the outputs’ ordering, by using a model-selection approach and a model-averaging approach. We estimate a ray-based Translog input distance function with a data set of Danish museums. These museums have more control over their inputs than over their outputs, and many of them do not produce the entire set of outputs that is considered in our analysis. Given the importance of monotonicity conditions in efficiency analysis, we demonstrate how to impose monotonicity on ray-based input distance functions. As part of the empirical analysis, we estimate technical efficiencies, distance elasticities of the inputs and outputs, and scale elasticities and establish how the production frontier is affected by some environmental variables that are of interest to the museum sector.

Keywords: Stochastic ray production frontier; distance function; input-oriented efficiency; zero output quantities; model averaging; monotonicity; museums. (search for similar items in EconPapers)
JEL-codes: C51 D22 D24 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2022-06
New Economics Papers: this item is included in nep-eff
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