Abstract
Stochastic frontier analysis based on cross-sectional data is hampered by the fact that only one observation is available for the estimation of two error components. Panel data containing several observations for each firm considerably improve the situation for estimating firm specific efficiency scores if some assumptions on the time path of inefficiencies are introduced.
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Notes
- 1.
In the context of the stochastic frontier model relying on the assumption of normality, Battese and Coelli (1992) introduced a time varying inefficiency term of the form \(\exp \left (-u_{i}\beta _{i}(t)\right )\) convenient because of its simple effect on the parameters of the normal distribution. To obtain linearity in the parameters, we regard \(\exp \left (-u_{i} +\beta _{i}(t)\right )\) instead. Therefore, we assume a scaling of the exponentiated inefficiency term exp(−u) instead of − u.
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Behr, A. (2015). Panel Data Stochastic Frontier Analysis. In: Production and Efficiency Analysis with R. Springer, Cham. https://doi.org/10.1007/978-3-319-20502-1_9
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DOI: https://doi.org/10.1007/978-3-319-20502-1_9
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