Efficient frontier estimation: a maximum entropy approach |
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| Authors: | Randall Campbell Kevin Rogers Jon Rezek |
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| Institution: | (1) Department of Finance and Economics, Mississippi State University, P.O. Box 9580, Starkville, MS 39762-9580, USA |
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| Abstract: | An alternative efficiency estimation approach is developed utilizing generalized maximum entropy (GME). GME combines the strengths
of both SFA and DEA, allowing for the estimation of a frontier that is stochastic, without making an ad hoc assumption about
the distribution of the efficiency component. GME results approach SFA results as the one-sided inefficiency bounds used by
GME shrink. Results similar to DEA are achieved as the bounds increase. The GME results are distributed like DEA, but yield
virtually the same rankings as SFA. The results suggest that GME may provide a link between various estimators of efficiency.
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| Keywords: | Efficiency Generalized maximum entropy Stochastic frontier approach Data envelopment analysis Deterministic parametric approach |
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