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Feasible estimation of firm‐specific allocative inefficiency through Bayesian numerical methods
Author(s) -
Atkinson Scott E.,
Dorfman Jeffrey H.
Publication year - 2009
Publication title -
journal of applied econometrics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.878
H-Index - 99
eISSN - 1099-1255
pISSN - 0883-7252
DOI - 10.1002/jae.1051
Subject(s) - allocative efficiency , inefficiency , econometrics , economics , estimation , range (aeronautics) , bayesian probability , bayes estimator , generalized method of moments , set (abstract data type) , panel data , statistics , mathematics , microeconomics , computer science , materials science , management , programming language , composite material
Both the theoretical and empirical literature on the estimation of allocative and technical inefficiency has grown enormously. To minimize aggregation bias, ideally one should estimate firm and input‐specific parameters describing allocative inefficiency. However, identifying these parameters has often proven difficult. For a panel of Chilean hydroelectric power plants, we obtain a full set of such parameters using Gibbs sampling, which draws sequentially from conditional generalized method of moments (GMM) estimates obtained via instrumental variables estimation. We find an economically significant range of firm‐specific efficiency estimates with differing degrees of precision. The standard GMM approach estimates virtually no allocative inefficiency for industry‐wide parameters. Copyright © 2009 John Wiley & Sons, Ltd.