Measuring Efficiency using a Stochastic Frontier Latent Class Model

Luis Orea and Subal Kumbhakar

No 2002/11, Efficiency Series Papers from University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG)

Abstract: Efficiency estimation in stochastic frontier models typically assumes that the underlying production technology is the same for all firms. There might, however, be unobserved differences in technologies and input/output qualities that can be inappropriately labeled as inefficiency if such differences are not taken into account. We address this issue by developing Stochastic Frontier Latent Class Model in a “panel data” framework. This model exploits the information contained in the data more efficiently compared to the traditional cluster analysis. An application of the proposed model is presented using Spanish banking data.

Keywords: stochastic cost frontier; latent class model; panel data; bank (search for similar items in EconPapers)
Pages: 22
Date: 2002
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Citations: View citations in EconPapers (4)

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