Skip to main content
SpringerLink
Log in

Misspecification Preferred: The Sensitivity of Inefficiency Rankings

  • Published:
Journal of Productivity Analysis Aims and scope Submit manuscript

Abstract

Ruggiero (European Journal of Operational Research 115, 555–563. 1999) compared the two popular parametric frontier methods for cross-sectional data—the stochastic frontier and the corrected OLS—in a simulation study. He demonstrated that the inefficiency ranking accuracy of the established stochastic frontier is uniformly inferior to that of the misspecified Corrected OLS (COLS) (which lacks an error term). The reason for his result remains unclear, however. In this paper, a more extensive simulation study is therefore conducted to find out whether the superiority of COLS is simply due to small sample sizes or to poor performance of the inefficiency level estimator.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • D.J. Aigner S.-F. Chu (1968) ArticleTitle“On Estimating the Industry Production Function” American Economic Review 58 826–839

    Google Scholar 

  • D.J. Aigner C.A.K. Lovell P. Schmidt (1977) ArticleTitle“Formulation and Estimation of Stochastic Frontier Production Function Models” Journal of Econometrics 6 21–37

    Google Scholar 

  • R.D. Banker A. Charnes W.W. Cooper A. Maindiratta (1988) “A Comparison of DEA and Translog Estimates of Production Functions Using Simulated Data from a Known Technology” A. Dagramaci R. Färe (Eds) Applications of Modern Production Theory—Efficiency and Productivity Kluwer Boston

    Google Scholar 

  • R.D. Banker V.M. Gadh W.L. Gorr (1993) ArticleTitle“A Monte Carlo Comparison of Two Production Frontier Estimation Methods: Corrected Ordinary Least Squares and Data Envelopment Analysis” European Journal of Operational Research 67 332–343

    Google Scholar 

  • S.B. Caudill J.M. Ford D.M. Gropper (1995) ArticleTitle“Frontier Estimation and Firm-Specific Inefficiency Measures in the Presence of Heteroscedasticity” Journal of Business & Economic Statistics 13 105–111

    Google Scholar 

  • T. Coelli (1995) ArticleTitle“Estimators and Hypothesis Tests for a Stochastic Frontier Function: A Monte Carlo analysis”. Journal of Productivity Analysis 6 247–268

    Google Scholar 

  • T. Coelli D.S.P. Rao G.E. Battese (1998) An Introduction to Efficiency and Productivity Analysis Kluwer Boston

    Google Scholar 

  • M.J. Farrell (1957) ArticleTitle“The Measurement of Productive Efficiency” Journal of the Royal Statistical Society A 120 253–290

    Google Scholar 

  • B.-H. Gong R.C. Sickles (1992) ArticleTitle“Finite Sample Evidence on the Performance of Stochastic Frontiers and Data Envelopment Analysis Using Panel Data” Journal of Econometrics 51 259–284

    Google Scholar 

  • W.H. Greene (1980) ArticleTitle“Maximum Likelihood Estimation of Econometric Frontier Functions” Journal of Econometrics 13 27–56

    Google Scholar 

  • W.H. Greene (1997) “Frontier Production Functions” M.H. Pesaran P. Schmidt (Eds) Handbook of Applied Econometrics Blackwell Cambridge

    Google Scholar 

  • U. Jensen (2000) ArticleTitle“Is it Efficient to Analyse Efficiency Rankings?” Empirical Economics 25 IssueID2 189–208

    Google Scholar 

  • U. Jensen (2001) Robuste Frontierfunktionen, methodologische Anmerkungen und Ausbildungsadäquanzmessung Peter Lang Frankfurt

    Google Scholar 

  • U. Jensen (2001b) “The Simplicity of an Earnings Frontier” A. Zellner H.A. Keuzenkamp M. McAleer (Eds) Simplicity, Inference and Modelling Cambridge University Press Cambridge

    Google Scholar 

  • J. Jondrow C.A.K. Lovell I.S. Materov P. Schmidt (1982) ArticleTitle“On the Estimation of Technical Inefficiency in the Stochastic Frontier Production Function Model” Journal of Econometrics 19 233–238

    Google Scholar 

  • W. Meeusen Broeck J.van den (1977) ArticleTitle“Efficiency Estimation from Cobb–Douglas Production Functions with Composed Error” International Economic Review 18 435–444

    Google Scholar 

  • J.A. Olson P. Schmidt D.M. Waldman (1980) ArticleTitle“A Monte Carlo Study of Estimators of Stochastic Frontier Production Functions”. Journal of Econometrics 13 67–82

    Google Scholar 

  • J. Ondrich J. Ruggiero (2001) ArticleTitle“Efficiency Measurement in the Stochastic Frontier Model” European Journal of Operational Research 129 434–442

    Google Scholar 

  • J. Ruggiero (1999) ArticleTitle“Efficiency Estimation and Error Decomposition in the Stochastic Frontier Model: A Monte Carlo Analysis” European Journal of Operational Research 115 555–563

    Google Scholar 

  • B.L. Seaver K.P. Triantis (1995) ArticleTitle“The Impact of Outliers and Leverage Points for Technical Efficiency Measurement Using High Breakdown Procedures” Management Science 41 IssueID5 937–956

    Google Scholar 

  • Winsten B. C. (1957) ArticleTitle“Discussion on Mr. Farrell’s Paper” Journal of the Royal Statistical Society A 120 282–284

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Institut für Statistik und Ökonometrie, Christian-Albrechts-Universität, Olshausenstr, 40, 24118, Kiel, Germany

    Uwe Jensen

Authors
  1. Uwe Jensen
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Uwe Jensen.

Additional information

JEL Classification: C1,C2,C5

Rights and permissions

Reprints and permissions

About this article

Cite this article

Jensen, U. Misspecification Preferred: The Sensitivity of Inefficiency Rankings. J Prod Anal 23, 223–244 (2005). https://doi.org/10.1007/s11123-005-1330-y

Download citation

  • Accepted:

  • Issue Date:

  • DOI: https://doi.org/10.1007/s11123-005-1330-y

Keywords

Search

Navigation