Estimation of a non-neutral stochastic frontier production function
10.1007/BF01073853 Cite this article as: Huang, C.J. & Liu, J. J Prod Anal (1994) 5: 171. doi:10.1007/BF01073853 Abstract
This article proposed a hybrid of a stochastic frontier regression. The proposed model and estimation differ from the conventional model of Aigner, Lovell, and Schmidt. The model combines a stochastic frontier regression and a truncated regression to estimate the production frontier with non-neutral shifting of the average production function. The truncated regression identifies the sources of efficiency. The article presents empirical evidence of non-neutral effects of the firm's characteristics—the age of the firms, the export ratio, and the R&D expenditure—on the frontier production function and production efficiency in the Taiwan's electronics industry.
We would like to express appreciation to George E. Battese, the associate editor, and anonymous referees for various comments and suggestions. The research was partially supported by the University Research Council of Vanderbilt University, and the Sun Yat-Sen Institute for Social Sciences and Philosophy of Academia Sinica, Taiwan. Residual errors are ours alone.
Aigner, D.J., C.A.K. Lovell, and P. Schmidt. (1977). “Formulation and Estimation of Stochastic Frontier Production Function Models,”
Journal of Econometrics, 21–37.
Chen, Tain-jy, and De-Piao Tang. (1987). “Comparing Technical Efficiency Between Import-Substituting-Oriented and Export-Oriented Foreign Firms in a Developing Economy.”
Journal of Development Economics, 26, 227–89.
Dempster, A.P., N.M. Laird and D.B. Rubin. (1977). “Maximum Likelihood from Incomplete Data Via the EM Algorithm.”
Journal of Royal Statistical Society, Series B, 39, 1–22.
Huang, C.J. (1984). “Estimation of Stochastic Frontier Production Function and Technical Inefficiency via the EM Algorithm.
Southern Economic Journal, 847–56.
Jondrow, J., C.A.K. Lovell, I.S. Materov and P. Schmidt. (1982). “On the Estimation of Technical Inefficiency in the Stochastic Frontier Production Function Model.”
Journal of Econometrics, 233–38.
Lee, Lung-Fei. (1983). “On Maximum Likelihood Estimation of Stochastic Frontier Production Models.
Journal of Econometrics, 269–74.
Meeusen, W. and J. van den Broeck. (1977). “Efficiency Estimation from Cobb-Douglas Production Function with Composed Error.”
International Economic Review, 1977, 435–44.
Wan, Guang H. and George E. Battese. (1992). “A Stochastic Frontier Production Function Incorporating Flexible Risk Properties.” Working Paper, Department of Econometrics, University of New England, June 1992.
© Kluwer Academic Publishers 1994