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Measuring Efficiency using a Stochastic Frontier Latent Class Model

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  • Orea, Luis
  • Kumbhakar, Subal

Abstract

Efficiency estimation in stochastic frontier models typically assumes that the underlying production technology is the same for all firms. There might, however, be unobserved differences in technologies and input/output qualities that can be inappropriately labeled as inefficiency if such differences are not taken into account. We address this issue by developing Stochastic Frontier Latent Class Model in a “panel data” framework. This model exploits the information contained in the data more efficiently compared to the traditional cluster analysis. An application of the proposed model is presented using Spanish banking data.

Suggested Citation

  • Orea, Luis & Kumbhakar, Subal, 2002. "Measuring Efficiency using a Stochastic Frontier Latent Class Model," Efficiency Series Papers 2002/11, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    • Handle: RePEc:oeg:wpaper:2002/11
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    File URL: https://www.unioviedo.es/oeg/ESP/esp_2002_11.pdf
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    References listed on IDEAS

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    Cited by:

    1. William Greene, 2004. "Distinguishing between heterogeneity and inefficiency: stochastic frontier analysis of the World Health Organization's panel data on national health care systems," Health Economics, John Wiley & Sons, Ltd., vol. 13(10), pages 959-980, October.
    2. Subal Kumbhakar & Efthymios Tsionas, "undated". "Does Deregulation Change Economic Behavior of Firms?," Working Papers 0303, University of Crete, Department of Economics.
    3. Mª Jesús Delgado Rodríguez & Inmaculada Alvarez Ayuso, 2004. "Capital público y eficiencia productiva: evidencia para la UE-15," Hacienda Pública Española / Review of Public Economics, IEF, vol. 168(1), pages 27-46, marzo.
    4. Fernandez-Blanco, Victor & Orea, Luis & Prieto-Rodriguez, Juan, 2009. "Analyzing consumers heterogeneity and self-reported tastes: An approach consistent with the consumer's decision making process," Journal of Economic Psychology, Elsevier, vol. 30(4), pages 622-633, August.

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