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The conditional mode in parametric frontier models

Author

Listed:
  • William C. Horrace

    (Syracuse University)

  • Hyunseok Jung

    (University of Arkansas)

  • Yi Yang

    (Amazon.com)

Abstract

We survey formulations of the conditional mode estimator for technical inefficiency in parametric stochastic frontier models with Normal errors and introduce new formulations for models with Laplace errors. We prove that the conditional mode estimator in the Normal-Exponential model achieves near-minimax optimality by estimating small inefficiencies as exactly zero. We also consider a rule for selecting a subset of maximally efficient firms based on zero conditional mode estimates and show that the subset has reasonably high probability of containing the most efficient firm, particularly when inefficiency is exponentially distributed. We include an empirical example demonstrating the merits of the conditional mode estimator.

Suggested Citation

  • William C. Horrace & Hyunseok Jung & Yi Yang, 2023. "The conditional mode in parametric frontier models," Journal of Productivity Analysis, Springer, vol. 60(3), pages 333-343, December.
    • Handle: RePEc:kap:jproda:v:60:y:2023:i:3:d:10.1007_s11123-023-00699-8
    DOI: 10.1007/s11123-023-00699-8
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    More about this item

    Keywords

    Stochastic frontier model; Firm-level inefficiency; Conditional mode; Minimax optimality; Ranking and selection;
    All these keywords.

    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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