A solution to log of dependent variables with negative observations

Journal of Productivity Analysis - Negative observations pose a problem in econometric models that apply log-transformation to the data. We propose a simple yet effective solution to this problem...     

Endogeneity in panel stochastic frontier models: an application to the Japanese cotton spinning industry

We present a panel stochastic frontier model that handles the endogeneity problem. This model can treat the endogeneity of both frontier and inefficiency variables. We apply our method to examine the technical efficiency of Japanese cotton spinning industry. Our results indicate that market concentration is endogenous, and when its endogeneity is properly handled, it has a larger negative impact on the technical efficiency of cotton spinning plants. We find that the exogenous model substantially overestimates efficiency in concentrated markets.     

School district consolidation: Market concentration and the scale‐efficiency tradeoff

Consolidation is often proposed as a strategy for increasing school district quality without increasing educational funding. However, if consolidation reduces competition in the local school market and reduces efficiency, any savings from exploiting economies of scale may be lost to increased inefficiency. We use a stochastic cost function to investigate these effects for districts in Texas. We find important economies of scale, but we also find that increased market concentration leads to increased cost inefficiency. Finally, we illustrate the practical importance of these two potentially offsetting factors in a simulation that considers consolidating Texas school districts to county‐level districts. We find that failure to consider the effect on competition can lead to large overestimates of the benefits of consolidation.     

Estimating market power using a composed error model

We present a maximum likelihood based composed error model to estimate market powers of firms. In our model, the stochastic part of the supply relation includes two random components: the conventional two‐sided error term and a random term, which is capturing firm‐specific conducts. Moreover, we provide a generalization of scaled Stevenson stochastic frontier model in the context of doubly truncated normal distributions. We estimate the market powers of Chicago based airlines as an empirical example that is showing the applicability of our estimation procedure.