Estimating fixed-effect panel stochastic frontier models by model transformation

Hung-Jen Wang () and Chia-Wen Ho

MPRA Paper from University Library of Munich, Germany

Abstract: Traditional panel stochastic frontier models do not distinguish between unobserved individual heterogeneity and inefficiency. They thus force all time-invariant individual heterogeneity into the estimated inefficiency. Greene (2005) proposes a true fixed-effect stochastic frontier model which, in theory, may be biased by the incidental parameters problem. The problem usually cannot be dealt with by model transformations owing to the nonlinearity of the stochastic frontier model. In this paper, we propose a class of panel stochastic frontier models which create an exception. We show that first-difference and within-transformation can be analytically performed on this model to remove the fixed individual effects, and thus the estimator is immune to the incidental parameters problem. Consistency of the estimator is obtained by either N→∞ or T→∞, which is an attractive property for empirical researchers

Keywords: Stochastic frontier models; Fixed effects; Panel data (search for similar items in EconPapers)
JEL-codes: C13 C16 C23 (search for similar items in EconPapers)
Date: 2009-12
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published in Journal of Econometrics 157.2(2010): pp. 286-296

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/31081/1/MPRA_paper_31081.pdf original version (application/pdf)

Related works:
Journal Article: Estimating fixed-effect panel stochastic frontier models by model transformation (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:31081

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().