Stochastic frontier models with multiple time-varying individual effects |
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Authors: | Seung C Ahn Young H Lee Peter Schmidt |
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Institution: | (1) Arizona State University and, Tempe, USA;(2) Department of Economics, Hansung University, 389 Samsun-dong 3ga, Sungbuk-gu, Seoul, 136-792, Korea;(3) Michigan State University, East Lansing, USA |
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Abstract: | This paper proposes a flexible time-varying stochastic frontier model. Similarly to Lee and Schmidt 1993, In: Fried H, Lovell
CAK, Schmidt S (eds) The measurement of productive efficiency: techniques and applications. Oxford University Press, Oxford],
we assume that individual firms’ technical inefficiencies vary over time. However, the model, which we call the “multiple
time-varying individual effects” model, is more general in that it allows multiple factors determining firm-specific time-varying
technical inefficiencies. This allows the temporal pattern of inefficiency to vary over firms. The number of such factors
can be consistently estimated. The model is applied to data on Indonesian rice farms, and the changes in the efficiency rankings
of farms over time demonstrate the model’s flexibility.
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Keywords: | Time-varying technical efficiency Stochastic frontiers Panel data |
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