A model for technical inefficiency effects in a stochastic frontier production function for panel data

A stochastic frontier production function is defined for panel data on firms, in which the non-negative technical inefficiency effects are assumed to be a function of firm-specific variables and time. The inefficiency effects are assumed to be independently distributed as truncations of normal distributions with constant variance, but with means which are a linear function of observable variables. This panel data model is an extension of recently proposed models for inefficiency effects in stochastic frontiers for cross-sectional data. An empirical application of the model is obtained using up to ten years of data on paddy farmers from an Indian village. The null hypotheses, that the inefficiency effects are not stochastic or do not depend on the farmer-specific variables and time of observation, are rejected for these data.     

The efficiency of museums: a stochastic frontier production function approach

This article examines the technical efficiency of museums based upon data derived from a questionnaire survey of South West England. A stochastic frontier production function is estimated with output measured in terms of visitor numbers. The Cobb-Douglas function is shown to be the best representation of the production function. Average levels of efficiency are estimated to be fairly low at 45.5% with wide variations across museums. The results indicate that high levels of public funding and voluntary activity have a significantly negative impact on technical efficiency. It is argued that further research is needed to develop more sophisticated measures of the output of cultural industries and understand the economic importance of volunteers.     

A tractable likelihood function for the normal-gamma stochastic frontier model

A stochastic frontier model is proposed in which the disturbances are a composite of additive gamma and normal components. We derive a tractable log-likelihood function and the vector of efficient scores, using standard mathematical functions.     

Strategic intergenerational bequests with stochastic convex production

Summary This note reconsiders the well-known model of strategic bequest/ altruistic growth, but with stochastic production satisfying a strong convexity condition: The probability that the next stock exceeds any given level is concave in investment. Existence of a Markov-stationary equilibrium consumption schedule, which is continuous and with all slopes in [0,1], is established. Under smooth data and interiority assumptions, this schedule is differentiable, and marginal consumption is in (0,1). This property allows for a rigorous and straightforward treatment of the equilibrium characterization problem.The author is grateful to Wolfgang Leininger for helpful discussions on the subject of this paper. This research work was carried out while the author was visiting C.O.R.E., Belgium and the University of Dortmund, Germany. The author wishes to thank both institutions for providing a great work environment as well as financial support from the projects Markets as Games and Marktstruktut und Gesamtwirtschaftliche Entwicklung, respectively.     

A stochastic model for technology forecasting

A stochastic model for technology forecasting is proposed. A complete analysis of the model is given and application to a real problem is presented.     

Alternative stochastic specifications of the frontier production function in the analysis of agricultural credit programs and technical efficiency

The effect of subsidized credit on the technical efficiency of traditional farmers in Southeastern Brazil is analyzed under two alternative stochastic specifications for the production frontier. It is found that the choice of stochastic specification significantly influences inferences regarding the effect of subsidized credit on measured technical efficiency.     

Optimal stationary consumption with stochastic production and resources

Uncertainty about technology and resources is represented in terms of uncertainty about an (exogenous) environment whose successive states form a stationary stochastic process, with probabilities that are unaffected by economic decisions. The successive states of the economy depend both on the environment and on the decisions taken with regard to production and consumption. It is shown that, under conditions that are natural extensions of “neoclassical” conditions in the case of certainty, (1) Capital saturation is possible, i.e., an optimal stationary stochastic program exists, and (2) An optimal program can be sustained by a price system that takes the form of a stationary stochastic process of price vectors. In other words, an optimal stationary program can be sustained by a stochastic “equilibrium,” in which at each date the optimal production decisions maximize expected intertemporal profit, and the optimal aggregate consumption vector has minimum cost among all aggregate consumption vectors yielding no less (social) utility.     

Specification and estimation of stochastic multiple-output production and technical inefficiency

This paper presents a primal-based approach for specification and estimation of multiple-output production frontiers that allows simultaneous identification and estimation of determinants of technical inefficiency. The proposed model extends the technical efficiency effects model by Battese and Coelli (1995) to general multiple-output technologies. An empirical application using Swedish health care panel data from the years 1989–1994 is included. The key issue is to test for the effects on technical efficiency of an organizational reform implemented with the primary purpose to increase efficiency. The results reveal no significant effect on technical efficiency of the reform, but evidence of overall decreased technical efficiency and technical progress in the provision of health care over the studied time period are found.     

A general revealed preference theorem for stochastic demand behavior

Summary. We present a general revealed preference theorem concerning stochastic choice behavior by consumers. We show that, when the consumer spends her entire wealth, the Weak Axiom of Stochastic Revealed Preference due to Bandyopadhyay, Dasgupta, and Pattanaik (1999) is equivalent to a restriction on stochastic demand behavior that we call stochastic substitutability. We also show that the relationship between the Weak Axiom of Revealed Preference and Samuelson's inequality in the deterministic theory, and the main result of Bandyopadhyay, Dasgupta, and Pattanaik (1999) are both special cases of our result.Received: 10 September 2001, Revised: 4 April 2003, JEL Classification Numbers: D11. Correspondence to: Prasanta K. PattanaikOur greatest debt is to the referee of this paper, who made numerous helpful suggestions. We thank Robin Cubitt, Kunal Sengupta and seminar audiences at Jawaharlal Nehru University, Indian Statistical Institute, University of East Anglia, Universidad Carlos III, University of Essex and University of Montreal for their helpful comments. Prasanta K. Pattanaik acknowledges his intellectual debt to Salvador Barbera, Tapas Majumdar and Amartya Sen.     

Efficiency and the production function

Journal of Economics -     

Uniqueness of Markov equilibrium in stochastic OLG models with nonclassical production

A large class of stochastic OLG economies with nonclassical production is shown to possess a unique Markov Equilibrium (ME) which is also the unique sequential equilibrium. Additional properties such as monotonicity, continuity, and smoothness of the ME are also discussed.     

Bus transit technical efficiency using latent class stochastic indirect production frontier

Using an Indirect Production Frontier (IPF), this article examines technical inefficiency within a latent class framework while simultaneously accounting for allocative distortions from operating and capital subsidies. It identifies two latent classes of US public transit systems, one characterized by economies of scale with 16.61% technical inefficiency and the other by diseconomies of scale with 14.16% technical inefficiency. It decomposes technical inefficiency among some of its sources and finds that the incentive tier of federal operating subsidies, regulations regarding years of vehicle use, subsidy-induced allocative distortion from labour overuse relative to capital negatively influence technical inefficiency in all transit systems. For the Latent Class 1 transit systems, the sources of lower technical inefficiency are operating speed, purchased transportation and years-of-vehicle-use regulation. For the Latent Class 2 transit systems, these sources are subsidy-induced capital-labour allocative distortion and the incentive tier component of the federal formula grant.     

A sequential stochastic tree problem

We consider here the owner of a plot of land upon which he sequentially plants and harvests trees. The trees' growth paths follow a stochastic process, and the owner must decide when to harvest and replant, given knowledge of the process and each tree's growth history. The results of this analysis are compared with the non-repeated case derived by Brock, Rothschild and Stiglitz (1979) (hereafter B.R.S.) and found to be qualitatively similar.     

Optimal foreign debt for Egypt: A stochastic control approach

This study assesses the foreign debt policy in Egypt and contrasts it versus the optimal policy during the period 1985–2008. It also presents a forecast of the optimal debt during the period 2009–2014. The optimal debt policy was derived using an open economy model for Egypt. The uncertainties in the model stem from the uncertainties in the interest or debt service payments and the uncertainties in the rate of return on investments. The stochastic control approach was used to find the optimal debt policy. It was found that Egypt could borrow externally as long as the trend in the rate of return on investments exceeds the trend in the real interest rate or the trend in the rate of the debt service payments. The analysis finds that Egypt's foreign debt was higher than the optimal level before 1997. After 1997, foreign debt seems to converge to the optimal level. However, Egypt's foreign debt is still below its optimal level which results in an opportunity cost for the economy to grow, otherwise, GDP could have recorded a favorable increase.     

A folk theorem for stochastic games with private almost-perfect monitoring

We prove a folk theorem for stochastic games with private, almost-perfect monitoring and observable states when the limit set of feasible and individually rational payoffs is independent of the state. This asymptotic state independence holds, for example, for irreducible stochastic games. Our result establishes that the sophisticated construction of Hörner and Olszewski (2006) for repeated games can be adapted to stochastic games, reinforcing our conviction that much knowledge and intuition about repeated games carries over to the analysis of irreducible stochastic games.     

A multivariate time series analysis of the United States aggregate production function

This study examines the effects of hours of work per unit of private sector capital, the relative price of energy, government capital per unit of private sector capital, and inflation on private sector output per unit of capital in the U.S. over the period 1952–90. A small vector autoregressive model that comprises the variables typically employed in single-equation estimates of the aggregate production function is used. Variance decompositions and cumulative impulse response functions indicate that hours of work per unit of private sector capital, the relative price of energy, and the inflation rate have significant effects on private sector output per unit of capital over the 1952–90 period. However, there is no evidence of a significant effect for government capital per unit of private capital. An historical decomposition that begins in 1973 with the emergence of a “productivity slump” and continues through 1990 indicates that shocks to hours of work per unit of capital, the relative price of oil, and inflation appear important in explaining output per unit of capital but shocks to government capital are not important.     

VARMA modeling of the production function

This paper models the elements of the production function by VARMA methods to gain empirical insight on which element leads the other. At the same time, we look for the possibility of detecting any characteristic which could help to differentiate between developed and developing economies.