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FIRM HETEROGENEITY, PERSISTENT AND TRANSIENT TECHNICAL INEFFICIENCY: A GENERALIZED TRUE RANDOM‐EFFECTS model
Author(s) -
Tsionas Efthymios G.,
Kumbhakar Subal C.
Publication year - 2012
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.2300
Subject(s) - inefficiency , econometrics , panel data , random effects model , term (time) , component (thermodynamics) , markov chain monte carlo , bayesian probability , inference , bayesian inference , economics , stochastic frontier analysis , monte carlo method , computer science , mathematics , statistics , microeconomics , production (economics) , medicine , meta analysis , physics , quantum mechanics , artificial intelligence , thermodynamics
SUMMARY This paper considers a panel data stochastic frontier model that disentangles unobserved firm effects (firm heterogeneity) from persistent (time‐invariant/long‐term) and transient (time‐varying/short‐term) technical inefficiency. The model gives us a four‐way error component model, viz., persistent and time‐varying inefficiency, random firm effects and noise. We use Bayesian methods of inference to provide robust and efficient methods of estimating inefficiency components in this four‐way error component model. Monte Carlo results are provided to validate its performance. We also present results from an empirical application that uses a large panel of US commercial banks. Copyright © 2012 John Wiley & Sons, Ltd.