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An Alternative Specification for Technical Efficiency Effects in a Stochastic Frontier Production Function

Author

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  • Satya Paul
  • Sriram Shanker

Abstract

This paper proposes an alternative specification for technical efficiency effects in a stochastic production frontier model. The proposed specification is distribution free and thus eschews one-sided error term present in almost all the existing inefficiency effects models. The efficiency effects are represented by the standard normal cumulative distribution function of exogenous variables which ensures the efficiency scores to lie in a unit interval. An empirical exercise based on widely used Philippines rice farming data set illustrates the simplicity and usefulness of the proposed model.

Suggested Citation

  • Satya Paul & Sriram Shanker, 2017. "An Alternative Specification for Technical Efficiency Effects in a Stochastic Frontier Production Function," Crawford School Research Papers 1703, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:crwfrp:1703
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    File URL: https://crawford.anu.edu.au/sites/default/files/publication/crawford01_cap_anu_edu_au/2017-02/cswp1703.pdf
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    Cited by:

    1. Subal C. Kumbhakar & Christopher F. Parmeter & Valentin Zelenyuk, 2022. "Stochastic Frontier Analysis: Foundations and Advances I," Springer Books, in: Subhash C. Ray & Robert G. Chambers & Subal C. Kumbhakar (ed.), Handbook of Production Economics, chapter 8, pages 331-370, Springer.

    More about this item

    Keywords

    Non-linear least squares; Standard normal cumulative distribution function; Technical efficiency;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets

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