Estimates of technical inefficiency in stochastic frontier models with panel data: generalized panel jackknife estimation

Estimates of technical inefficiency based on fixed effects estimation of the stochastic frontier model with panel data are biased upward. Previous work has attempted to correct this bias using the bootstrap, but in simulations the bootstrap corrects only part of the bias. The usual panel jackknife is based on the assumption that the bias is of order T ⁻¹ and is similar to the bootstrap. We show that when there is a tie or a near tie for the best firm, the bias is of order T ^−1/2, not T ⁻¹, and this calls for a different form of the jackknife. The generalized panel jackknife is quite successful in removing the bias. However, the resulting estimates have a large variance.