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A Dynamic Stochastic Frontier Production Model with Time-Varying Efficiency

Evangelia Desli (), Subhash Ray () and Subal Kumbhakar ()

No 2003-15, Working papers from University of Connecticut, Department of Economics

Abstract: In this paper we introduce technical efficiency via the intercept that evolve over time as a AR(1) process in a stochastic frontier (SF) framework in a panel data framework. Following are the distinguishing features of the model. First, the model is dynamic in nature. Second, it can separate technical inefficiency from fixed firm-specific effects which are not part of inefficiency. Third, the model allows one to estimate technical change separate from change in technical efficiency. We propose the ML method to estimate the parameters of the model. Finally, we derive expressions to calculate/predict technical inefficiency (efficiency).

JEL-codes: C31 (search for similar items in EconPapers)
Pages: 11 pages
Date: 2002-09
New Economics Papers: this item is included in nep-ecm, nep-eff and nep-ino
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