Stochastic FDH/DEA estimators for Frontier Analysis

Leopold Simar and Valentin Zelenyuk

No 8, Discussion Papers from Kyiv School of Economics

Abstract: In this paper we extend the work of Simar (2007) introducing noise in nonparametric frontier models. We develop an approach that synthesizes the best features of the two main methods in the estimation of production efficiency. Specifically, our approach first allows for statistical noise, similar to Stochastic Frontier Analysis (even in a more flexible way), and second, it allows modelling multiple-inputs-multiple-outputs technologies without imposing parametric assumptions on production relationship, similar to what is done in non-parametric methods (DEA, FDH, etc. . . ). The methodology is based on the theory of local maximum likelihood estimation and extends recent works of Park, Kumbhakar, Simar and Tsionas (2007) and Park, Simar and Zelenyuk (2006). Our method is suitable for modelling and estimation of the marginal effects onto inefficiency level jointly with estimation of marginal effects of input. The approach is robust to heteroskedastic cases and to various (unknown) distributions of statistical noise and inefficiency, despite assuming simple anchorage models. The method also improves DEA/FDH estimators, by allowing them to be quite robust to statistical noise and especially to outliers, which were the main problems of the original DEA/FDH. The procedure shows great performance for various simulated cases and is also illustrated for some real data sets.

Keywords: Stochastic Frontier; Nonparametric Frontier; Local Maximum Likelihood (search for similar items in EconPapers)
JEL-codes: C13 C14 C2 (search for similar items in EconPapers)
Date: 2008-06
New Economics Papers: this item is included in nep-ecm, nep-eff and nep-ore
Note: Under review in Journal of Business and Economic Statistics
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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http://repec.kse.org.ua/pdf/KSE_dp8.pdf First version, May 2008 (application/pdf)

Related works:
Journal Article: Stochastic FDH/DEA estimators for frontier analysis (2011)
Working Paper: Stochastic FDH/DEA estimators for frontier analysis (2011)
Working Paper: Stochastic FDH/DEA estimators for frontier analysis (2010)
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