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Nonparametric tests of tail behavior in stochastic frontier models

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  • William C. Horrace
  • Yulong Wang

Abstract

This article studies tail behavior for the error components in the stochastic frontier model, where one component has bounded support on one side, and the other has unbounded support on both sides. Under weak assumptions on the error components, we derive nonparametric tests for thin‐tailed distributional assumptions imposed on these two components. The tests are useful diagnostic tools for stochastic frontier analysis and kernel deconvolution density estimation. A simulation study and applications to four previously studied datasets are provided. In two of these applications, the new tests reject the thin‐tailed distributional assumptions such as normal or Laplace, which are commonly imposed in the existing literature.

Suggested Citation

  • William C. Horrace & Yulong Wang, 2022. "Nonparametric tests of tail behavior in stochastic frontier models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(3), pages 537-562, April.
    • Handle: RePEc:wly:japmet:v:37:y:2022:i:3:p:537-562
    DOI: 10.1002/jae.2888
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    Cited by:

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    2. Tsionas, Mike G. & Patel, Pankaj C., 2023. "Accounting for intra-industry technological heterogeneity in the measurement of operations efficiency," International Journal of Production Economics, Elsevier, vol. 260(C).
    3. Jun Cai & William C. Horrace & Christopher F. Parmeter, 2024. "Penalized sieve estimation of zero‐inefficiency stochastic frontiers," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 39(1), pages 41-65, January.

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    More about this item

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity

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