Estimation of the two-tiered stochastic frontier model with the scaling property
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The two-tiered stochastic frontier model has enjoyed success across a range of application domains where it is believed that incomplete information on both sides of the market leads to surplus which buyers and sellers can extract. Currently, this model is hindered by the fact that estimation relies on very restrictive distributional assumptions on the behavior of incomplete information on both sides of the market. However, this reliance on specific parametric distributional assumptions can be eschewed if the scaling property is invoked. The scaling property has been well studied in the stochastic frontier literature, but as of yet, has not been used in the two-tier frontier setting.
KeywordsIncomplete information Nonlinear least squares Heteroskedasticity Identification
JEL classificationC0 C1
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Conflict of interest
The authors declare that they have no competing interests.
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