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Data aggregation in stochastic frontier models: the closed skew normal distribution

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  • B. Brorsen
  • Taeyoon Kim

Abstract

The effect of aggregation on estimates of stochastic frontier functions is considered. Inefficiency is assumed associated with the individual units being aggregated. In this case, the aggregated data have a closed skew normal distribution. Estimating the parameters of a closed skew normal distribution is difficult and so we focus mostly on the biases created by ignoring the fact that the data are aggregated. The conclusions are based on both analytical and Monte Carlo results. When data for firms are aggregates over smaller units and the inefficiency is associated with the units and not the firm, empirical work that does not consider the effect of aggregation will attribute the inefficiency of large firms to diseconomies of scale. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • B. Brorsen & Taeyoon Kim, 2013. "Data aggregation in stochastic frontier models: the closed skew normal distribution," Journal of Productivity Analysis, Springer, vol. 39(1), pages 27-34, February.
    • Handle: RePEc:kap:jproda:v:39:y:2013:i:1:p:27-34
    DOI: 10.1007/s11123-012-0274-2
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    References listed on IDEAS

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    2. Christopher N. Boyer & B. Wade Brorsen & Emmanuel Tumusiime, 2015. "Modeling skewness with the linear stochastic plateau model to determine optimal nitrogen rates," Agricultural Economics, International Association of Agricultural Economists, vol. 46(1), pages 1-10, January.

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    More about this item

    Keywords

    Aggregation; Closed skew normal; Cost function; Frontier; Stochastic frontier; C43; D24; Q12;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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