Stead, AD orcid.org/0000-0002-7836-3827, Wheat, P orcid.org/0000-0003-0659-5052 and Greene, WH (2018) Estimating efficiency in the presence of extreme outliers: A logistic-half normal stochastic frontier model with application to highway maintenance costs in England. In: Greene, WH, Khalaf, L, Makdissi, P, Sickles, RC, Veall, MR and Voia, M-C, (eds.) Productivity and Inequality. Springer Proceedings in Business and Economics . Springer International Publishing , pp. 1-19. ISBN 978-3-319-68677-6
Abstract
In Stochastic Frontier Analysis the presence of outliers in the data, which can often be safely ignored in other forms of linear modelling, has potentially serious consequences in that it may lead to implausibly large variation in efficiency predictions when based on the conditional mean. This motivates the development of alternative stochastic frontier specifications which are appropriate when the two-sided error has heavy tails. Several existing proposals to this effect have proceeded by specifying thick tailed distributions for both error components in order to arrive at a closed form log-likelihood. In contrast, we use simulation-based methods to pair the canonical inefficiency distributions (in this example half-normal) with a logistically distributed noise term. We apply this model to estimate cost frontiers for highways authorities in England, and compare results obtained from the conventional normal-half normal stochastic frontier model. We show that the conditional mean yields less extreme inefficiency predictions for large residuals relative to the use of the normal distribution for noise.
Metadata
Item Type: | Book Section |
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Authors/Creators: |
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Editors: |
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Copyright, Publisher and Additional Information: | (c) 2018, Springer International Publishing AG. This is a pre-print of a contribution published in 'Greene, WH, Khalaf, L, Makdissi, P, Sickles, RC, Veall, MR and Voia, M-C, (eds.) Productivity and Inequality. Springer Proceedings in Business and Economics,' published by Springer. The definitive authenticated version is available online via https://doi.org/10.1007/978-3-319-68678-3_1 |
Keywords: | Efficiency analysis; Efficiency; Stochastic frontier analysis; Logistic distribution; Highway maintenance; Costs |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Environment (Leeds) > Institute for Transport Studies (Leeds) |
Funding Information: | Funder Grant number Measure2Improve M2I |
Depositing User: | Symplectic Publications |
Date Deposited: | 21 Sep 2017 16:13 |
Last Modified: | 03 Feb 2019 01:38 |
Published Version: | http://www.springer.com/gb/book/9783319686776 |
Status: | Published |
Publisher: | Springer International Publishing |
Series Name: | Springer Proceedings in Business and Economics |
Identification Number: | 10.1007/978-3-319-68678-3_1 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:121055 |