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A Recursive Thick Frontier Approach to Estimating Production Efficiency

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  • Rien J. L. M. Wagenvoort
  • Paul H. Schure

Abstract

We introduce a new panel data estimation technique for production and cost functions, the recursive thick frontier approach (RTFA). RTFA has two advantages over existing econometric frontier methods. First, technical inefficiency is allowed to be dependent on the explanatory variables of the frontier model. Secondly, RTFA does not hinge on distributional assumptions on the inefficiency component of the error term. We show by means of simulation experiments that RTFA outperforms the popular stochastic frontier approach and the ‘within’ ordinary least squares estimator for realistic parameterizations of a productivity model. Although RTFAs formal statistical properties are unknown, we argue, based on these simulation experiments, that RTFA is a useful complement to existing methods.

Suggested Citation

  • Rien J. L. M. Wagenvoort & Paul H. Schure, 2006. "A Recursive Thick Frontier Approach to Estimating Production Efficiency," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 68(2), pages 183-201, April.
    • Handle: RePEc:bla:obuest:v:68:y:2006:i:2:p:183-201
    DOI: 10.1111/j.1468-0084.2006.00158.x
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    1. Jorge David Quinteo Otero & William Orlando Prieto Bustos & Fernando Barrios Aguirre & Laura Elena Leviller Guardo, 2008. "Determinantes de la eficiencia técnica en las empresas colombianas, 2001-2004," Revista Semestre Económico, Universidad de Medellín, November.
    2. Rojas, Mariano, 2012. "Do People in Income Poverty Use Their Income Efficiently? A Subjective Well-Being Approach," WIDER Working Paper Series 110, World Institute for Development Economic Research (UNU-WIDER).
    3. Mariano Rojas, 2012. "Do People in Income Poverty Use Their Income Efficiently?: a Subjective Well-Being Approach," WIDER Working Paper Series wp-2012-110, World Institute for Development Economic Research (UNU-WIDER).

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    More about this item

    JEL classification:

    • C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Statistical Simulation Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • D2 - Microeconomics - - Production and Organizations

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