Interpreting and Testing the Scaling Property in Models where Inefficiency Depends on Firm Characteristics |
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Authors: | Antonio Alvarez Christine Amsler Luis Orea Peter Schmidt |
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Institution: | (1) Dpto. de Economia, Universidad de Oviedo, Avenida del Cristo s.n., 33071 Oviedo, Spain;(2) Department of Economics, Michigan State University, East Lansing, MI 48824, USA |
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Abstract: | Let u ≥ 0 be technical inefficiency, let z be a set of variables that affect u, and let δ be the parameters of this relationship.
The model satisfies the scaling property if u(z, δ) can be written as a scaling function h(z, δ) times a random variable u* that does not depend on z. This property
implies that changes in z affect the scale but not the shape of u(z,δ). This paper reviews the existing literature and identifies
models that do and do not have the scaling property. It also discusses practical advantages of the scaling property. The paper
shows how to test the hypothesis of scaling, and other interesting hypotheses, in the context of the model of Wang, Journal of Productivity Analysis, 2002. Finally, two empirical examples are given. |
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Keywords: | Stochastic frontier model Scaling property Technical inefficiency |
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