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Estimating efficiency effects in a panel data stochastic frontier model

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  • Satya Paul

    (Australian National University
    Amrita University)

  • Sriram Shankar

    (Australian National University)

Abstract

This paper proposes a panel data based stochastic frontier model which accommodates time-invariant unobserved heterogeneity along with efficiency effects. The efficiency effects are specified by a standard normal cumulative distribution function of exogenous variables which ensures the efficiency scores to lie in a unit interval. The model is within-transformed and then estimated with non-linear least squares. The finite sample properties of the proposed estimator are investigated through a set of Monte Carlo experiments. The experiments suggest that our estimation procedure generally performs well also in small samples. Finally, an empirical illustration based on widely used panel data on Indian farmers reveals the simplicity and easy applicability of the model.

Suggested Citation

  • Satya Paul & Sriram Shankar, 2020. "Estimating efficiency effects in a panel data stochastic frontier model," Journal of Productivity Analysis, Springer, vol. 53(2), pages 163-180, April.
    • Handle: RePEc:kap:jproda:v:53:y:2020:i:2:d:10.1007_s11123-019-00568-3
    DOI: 10.1007/s11123-019-00568-3
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    More about this item

    Keywords

    Fixed effects; Stochastic frontier; Technical efficiency; Standard normal cumulative distribution function; Monte Carlo simulations; Non-linear least squares;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • 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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