Wheat, PE and Smith, ASJ (2012) Is the choice of (t-T) in Battese and Coelli (1992) type stochastic frontier models innocuous? Observations and generalisations. Economics Letters, 116 (3). 291 - 294. ISSN 0165-1765
Abstract
In this paper we consider the sensitivity of functional form in the popular panel data stochastic frontier model proposed by Battese and Battese and Coelli (BC, 1992). We demonstrate that adopting the (t−Tt−T) efficiency functional form used by BC can, in a model which allows for firm specific patterns of temporal inefficiency variation (as developed by Cuesta, 2000), results in counter intuitive ‘falling-off’ of efficient firms in the final sample year. This motivates us to look at a more general parameterisation. First we show that the choice of a function within the first order exponential class is only an issue for the Cuesta model; in the BC model, parameter estimates and inefficiency estimates are invariant to the form. Second we apply the more general model to a railways dataset and find that this model does not seem to suffer from the most efficient firms falling off the frontier. We discuss how to test restrictions in order to make the model more parsimonious, thus preserving the attractive property of the Cuesta model, namely the ability to test for firm specific patterns of inefficiency variation.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | (c) 2012, Elsevier. NOTICE: this is the author’s version of a work that was accepted for publication in Economics Letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Economics Letters, 116, 3,(2012) DOI 10.1016/j.econlet.2012.03.013 |
Keywords: | Stochastic frontier; efficiency; functional form |
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) |
Depositing User: | Symplectic Publications |
Date Deposited: | 29 Jul 2014 11:20 |
Last Modified: | 16 Sep 2016 14:16 |
Published Version: | http://dx.doi.org/10.1016/j.econlet.2012.03.013 |
Status: | Published |
Publisher: | Elsevier |
Identification Number: | 10.1016/j.econlet.2012.03.013 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:43834 |