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Estimating efficiency effects in a panel data stochastic frontier model

  • Satya Paul
  • Sriram ShankarEmail author
Article
  • 28 Downloads

Abstract

This paper proposes a panel data based stochastic frontier model which accommodates time-invariant unobserved heterogeneity along with efficiency effects. The efficiency effects are specified by a standard normal cumulative distribution function of exogenous variables which ensures the efficiency scores to lie in a unit interval. The model is within-transformed and then estimated with non-linear least squares. The finite sample properties of the proposed estimator are investigated through a set of Monte Carlo experiments. The experiments suggest that our estimation procedure generally performs well also in small samples. Finally, an empirical illustration based on widely used panel data on Indian farmers reveals the simplicity and easy applicability of the model.

Keywords

Fixed effects Stochastic frontier Technical efficiency Standard normal cumulative distribution function Monte Carlo simulations Non-linear least squares 

JEL classification

C51 D24 Q12 

Notes

Acknowledgements

We are grateful to two anonymous referees and Prasada Rao for their useful comments and suggestions on earlier drafts of this paper. We are also thankful to Hung-Jen Wang for providing us the farm level data used for empirical exercise in this paper.

Compliance with ethical standards

Conflict of interest

The authors declare that they have no conflict of interest.

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© Springer Science+Business Media, LLC, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Centre for Social Research and MethodsAustralian National UniversityCanberraAustralia
  2. 2.Centre for Economics and GovernanceAmrita UniversityKollamIndia
  3. 3.Centre for Social Research and Methods & Research School of EconomicsAustralian National UniversityCanberraAustralia

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