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Stochastic Frontiers and Asymmetric Information Models

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  • Philippe Gagnepain
  • Marc Ivaldi

Abstract

This article is an attempt to shed light on the specification and identification of inefficiency in stochastic frontiers. We consider the case of a regulated firm or industry. Applying a simple principal-agent framework that accounts for informational asymmetries to this context, we derive the associated production and cost frontiers. Noticeably this approach yields a decomposition of inefficiency into two components: The first component is a pure random term while the second component depends on the unobservable actions taken by the agent (the firm). This result provides a theoretical foundation to the usual specification applied in the literature on stochastic frontiers. An application to a panel data set of French urban transport networks serves as an illustration. Copyright Kluwer Academic Publishers 2002

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  • Philippe Gagnepain & Marc Ivaldi, 2002. "Stochastic Frontiers and Asymmetric Information Models," Journal of Productivity Analysis, Springer, vol. 18(2), pages 145-159, September.
    • Handle: RePEc:kap:jproda:v:18:y:2002:i:2:p:145-159
    DOI: 10.1023/A:1016582220790
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    6. Cornwell, Christopher & Schmidt, Peter & Sickles, Robin C., 1990. "Production frontiers with cross-sectional and time-series variation in efficiency levels," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 185-200.
    7. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
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    Cited by:

    1. Gagnepain, Philippe & Marin, Pedro L, 2006. "Regulation and Incentives in European Aviation," Journal of Law and Economics, University of Chicago Press, vol. 49(1), pages 229-248, April.
    2. Charpin, Ariane & Piechucka, Joanna, 2021. "Merger efficiency gains: Evidence from a large transport merger in france," International Journal of Industrial Organization, Elsevier, vol. 77(C).
    3. Francesco, Gastaldi & Lucia, Quaglino & Carlo, Stagnaro, 2012. "Il trasporto pubblico locale e la concorrenza. Cambiare paradigma per salvare il servizio: il caso ligure [Local Public Transportation and Competition. Changing Paradigm to Save the Service: The Ca," MPRA Paper 49464, University Library of Munich, Germany.
    4. Philippe Gagnepain & Marc Ivaldi, 2002. "Incentive Regulatory Policies: The Case of Public Transit Systems in France," RAND Journal of Economics, The RAND Corporation, vol. 33(4), pages 605-629, Winter.
    5. Philippe Gagnepain & Marc Ivaldi & Catherine Muller-Vibes, 2011. "The Industrial Organization of Competition in Local Bus Services," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 32, Edward Elgar Publishing.
    6. Levent Kutlu & Shasha Liu & Robin C. Sickles, 2022. "Cost, Revenue, and Profit Function Estimates," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 16, pages 641-679, Springer.
    7. Philippe Gagnepain, 2001. "La nouvelle théorie de la régulation des monopoles naturels : fondements et tests," Post-Print hal-00622947, HAL.
    8. Augustin, Katrin & Walter, Matthias, 2010. "Operator changes through competitive tendering: Empirical evidence from German local bus transport," Research in Transportation Economics, Elsevier, vol. 29(1), pages 36-44.
    9. Cinzia Daraio & Marco Diana & Flavia Di Costa & Claudio Leporelli & Giorgio Matteucci & Alberto Nastasi, 2014. "Efficiency and effectiveness in the urban public transport sector: a critical review with directions for future research," DIAG Technical Reports 2014-14, Department of Computer, Control and Management Engineering, Universita' degli Studi di Roma "La Sapienza".
    10. Leonardo J. Basso & Sergio R. Jara-Díaz & William G. Waters, 2011. "Cost Functions for Transport Firms," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 12, Edward Elgar Publishing.
    11. Francisco Gildemir Ferreira Silva, 2022. "Brazilian railways separability infrastructure/operations: investigation by production indicators," SN Business & Economics, Springer, vol. 2(7), pages 1-25, July.
    12. Shasha Liu & Robin Sickles, 2021. "The agency problem revisited: a structural analysis of managerial productivity and CEO compensation in large US commercial banks," Empirical Economics, Springer, vol. 60(1), pages 391-418, January.
    13. de Borger, Bruno & Kerstens, Kristiaan & Staat, Matthias, 2008. "Transit costs and cost efficiency: Bootstrapping non-parametric frontiers," Research in Transportation Economics, Elsevier, vol. 23(1), pages 53-64, January.
    14. Ariane Charpin & Joanna Piechucka, 2020. "Merger Efficiency Gains: Evidence from a Large Transport Merger in France," Discussion Papers of DIW Berlin 1843, DIW Berlin, German Institute for Economic Research.
    15. Massimiliano Piacenza, 2002. "Regulatory Constraints and Cost Efficiency of the Italian Public Transit Systems: An Exploratory Stochastic Frontier Model," CERIS Working Paper 200202, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    16. Huang, Di & Liu, Zhiyuan & Liu, Pan & Chen, Jun, 2016. "Optimal transit fare and service frequency of a nonlinear origin-destination based fare structure," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 96(C), pages 1-19.
    17. Philippe Gagnepain & Marc Ivaldi, 2002. "Asymétries d'information et richesse immatérielle de l'entreprise," Revue Française d'Économie, Programme National Persée, vol. 16(3), pages 129-153.
    18. Vaneet Bhatia & Sankarshan Basu & Subrata Kumar Mitra & Pradyumna Dash, 2018. "A review of bank efficiency and productivity," OPSEARCH, Springer;Operational Research Society of India, vol. 55(3), pages 557-600, November.
    19. Massimiliano Piacenza, 2000. "The Public Transit Systems In Italy: A Critical Analysis Of The Regulatory Framework," CERIS Working Paper 200016, CNR-IRCrES Research Institute on Sustainable Economic Growth - Torino (TO) ITALY - former Institute for Economic Research on Firms and Growth - Moncalieri (TO) ITALY.
    20. Guerino Ardizzi, 2004. "Cost Efficiency in the Retail Payment Networks: First Evidence from the Italian Credit Card System," Rivista di Politica Economica, SIPI Spa, vol. 94(5), pages 51-82, September.
    21. Beniamina Margari & Fabrizio Erbetta & Carmelo Petraglia & Massimiliano Piacenza, 2007. "Regulatory and environmental effects on public transit efficiency: a mixed DEA-SFA approach," Journal of Regulatory Economics, Springer, vol. 32(2), pages 131-151, October.
    22. Joanna Piechucka, 2021. "Cost efficiency and endogenous regulatory choices: evidence from the transport industry in France," Journal of Regulatory Economics, Springer, vol. 59(1), pages 25-46, February.
    23. Ulaş Ünlü & Neşe Yalçın & Nuri Avşarlıgil, 2022. "Analysis of Efficiency and Productivity of Commercial Banks in Turkey Pre- and during COVID-19 with an Integrated MCDM Approach," Mathematics, MDPI, vol. 10(13), pages 1-22, July.

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    More about this item

    Keywords

    costs and production stochastic frontiers; asymmetric information; technical inefficiency; effort; regulation; test of specification; urban transport;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L51 - Industrial Organization - - Regulation and Industrial Policy - - - Economics of Regulation

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