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A Semiparametric Stochastic Frontier Model with Correlated Effects

In: Topics in Identification, Limited Dependent Variables, Partial Observability, Experimentation, and Flexible Modeling: Part B

Author

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  • Gholamreza Hajargasht
  • William E. Griffiths

Abstract

We consider a semiparametric panel stochastic frontier model where one-sided firm effects representing inefficiencies are correlated with the regressors. A form of the Chamberlain-Mundlak device is used to relate the logarithm of the effects to the regressors resulting in a lognormal distribution for the effects. The function describing the technology is modeled nonparametrically using penalized splines. Both Bayesian and non-Bayesian approaches to estimation are considered, with an emphasis on Bayesian estimation. A Monte Carlo experiment is used to investigate the consequences of ignoring correlation between the effects and the regressors, and choosing the wrong functional form for the technology.

Suggested Citation

  • Gholamreza Hajargasht & William E. Griffiths, 2019. "A Semiparametric Stochastic Frontier Model with Correlated Effects," Advances in Econometrics, in: Topics in Identification, Limited Dependent Variables, Partial Observability, Experimentation, and Flexible Modeling: Part B, volume 40, pages 1-28, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:aecozz:s0731-90532019000040b002
    DOI: 10.1108/S0731-90532019000040B002
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