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Estimating the Materials Balance Condition: A Stochastic Frontier Approach

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  • Hampf, Benjamin

Abstract

In this paper we propose a stochastic formulation of the materials balance condition which imposes physical constraints on production technologies. The estimation of the model involves a composed error term structure that is commonly applied in the literature on stochastic frontier analysis of productive effciency. Moreover, we discuss how OLS, maximum likelihood and Bayesian methods can be used to estimate the proposed model. In contrast to previous approaches our model allows to estimate the physical limitations to production possibilities in the presence of statistical noise and depends on substantially weaker data requirements. We demonstrate the applicability of our new approach by estimating the materials balance cndition for SO2 and CO2 using a sample of fossil-fueled power plants in the United States.

Suggested Citation

  • Hampf, Benjamin, 2015. "Estimating the Materials Balance Condition: A Stochastic Frontier Approach," Publications of Darmstadt Technical University, Institute for Business Studies (BWL) 79457, Darmstadt Technical University, Department of Business Administration, Economics and Law, Institute for Business Studies (BWL).
    • Handle: RePEc:dar:wpaper:79457
    Note: for complete metadata visit http://tubiblio.ulb.tu-darmstadt.de/79457/
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    Cited by:

    1. Benjamin Hampf, 2018. "Measuring inefficiency in the presence of bad outputs: Does the disposability assumption matter?," Empirical Economics, Springer, vol. 54(1), pages 101-127, February.

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