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Analysis of dependence between the random components of a stochastic production function for the purpose of technical efficiency estimation

Author

Listed:
  • Aivazian, Sergei

    (CEMI RAS, Moscow, Russia)

  • Afanasiev, Mikhail

    (CEMI RAS, Moscow, Russia)

  • Rudenko, Victoria

    (Moscow Engineering Physics Institute (National Research Nuclear University), Russia)

Abstract

In elaboration of the stochastic frontier methodology we offer an approach to test a statistic hypothesis about independence of random components of a stochastic production function for the purpose of estimation of technical efficiency. We describe the dependence between the error components by a copula. For parameters estimation in the econometric model in case of dependent error components the analytical expressions for log-likelihood function and its derivatives are given. The results of an experimental hypothesis test based on simulated data with dependent error components are also provided. We use two approaches for the parameters estimation: statistical package Stata 10.0 under an assumption of independence of the error components and created in MS Excel macro which gives the possibility to analyze models with dependent error components. It is shown that using non-tested assumption of independence of the random components of a stochastic production function may lead to wrong results in estimation of the technical efficiency.

Suggested Citation

  • Aivazian, Sergei & Afanasiev, Mikhail & Rudenko, Victoria, 2014. "Analysis of dependence between the random components of a stochastic production function for the purpose of technical efficiency estimation," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 34(2), pages 3-18.
    • Handle: RePEc:ris:apltrx:0234
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    References listed on IDEAS

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    Cited by:

    1. Nikolskiy, Ilya & Furmanov, Kirill, 2023. "Assessing the accuracy of efficiency rankings obtained from a stochastic frontier model," Applied Econometrics, Russian Presidential Academy of National Economy and Public Administration (RANEPA), vol. 71, pages 128-142.

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    More about this item

    Keywords

    econometric model; production potential; production factors; intellectual capital; copula; normal copula; dependence of error components.;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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