Document Type

Article

Date

2012

Embargo Period

12-5-2012

Keywords

Truncated normal, Stochastic frontier, Efficiency, Multivariate probabilities

Disciplines

Economics

Description/Abstract

Parametric stochastic frontier models yield firm-level conditional distributions of inefficiency that are truncated normal. Given these distributions, how should one assess and rank firm-level efficiency? This study compares the techniques of estimating (a) the conditional mean of inefficiency and (b) probabilities that firms are most or least efficient. Monte Carlo experiments suggest that the efficiency probabilities are easier to estimate (less noisy) in terms of mean absolute percent error when inefficiency has large variation across firms. Along the way we tackle some interesting problems associated with simulating and assessing estimator performance in the stochastic frontier model.

Source

local input

Creative Commons License

Creative Commons Attribution 3.0 License
This work is licensed under a Creative Commons Attribution 3.0 License.

Included in

Economics Commons

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