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Profit versus Cost Frontier Estimation of Price and Technical Inefficiency: A Parametric Approach with Panel Data
Author(s) -
Atkinson Scott E.,
Cornwell Christopher
Publication year - 1998
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/j.2325-8012.1998.tb00092.x
Subject(s) - allocative efficiency , inefficiency , shadow price , economics , econometrics , profit (economics) , panel data , marginal cost , profit maximization , microeconomics , parametric statistics , shadow (psychology) , mathematical optimization , mathematics , statistics , psychology , psychotherapist
We develop two panel data models, based on the assumption of shadow‐profit maximization, to obtain firm‐specific parametric estimates of allocative, scale, and technical inefficiency. One is a restricted shadow‐profit system with additional equations for quasi‐fixed inputs that allow testing for the efficiency of their utilization. The other is a shadow‐cost system augmented with an equation to capture deviations from marginal‐cost pricing. We show that with the translog functional form, the shadow‐profit system may encounter computational difficulties that the shadow‐cost system avoids. An application of the shadow‐cost system to the U.S. airline industry is provided.