Premium
A Recursive Thick Frontier Approach to Estimating Production Efficiency *
Author(s) -
Wagenvoort Rien J. L. M.,
Schure Paul H.
Publication year - 2006
Publication title -
oxford bulletin of economics and statistics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.131
H-Index - 73
eISSN - 1468-0084
pISSN - 0305-9049
DOI - 10.1111/j.1468-0084.2006.00158.x
Subject(s) - inefficiency , econometrics , estimator , production–possibility frontier , frontier , production (economics) , cointegration , complement (music) , econometric model , component (thermodynamics) , economics , panel data , ordinary least squares , computer science , mathematics , statistics , microeconomics , biochemistry , chemistry , physics , phenotype , archaeology , complementation , gene , history , thermodynamics
We introduce a new panel data estimation technique for production and cost functions, the recursive thick frontier approach (RTFA). RTFA has two advantages over existing econometric frontier methods. First, technical inefficiency is allowed to be dependent on the explanatory variables of the frontier model. Secondly, RTFA does not hinge on distributional assumptions on the inefficiency component of the error term. We show by means of simulation experiments that RTFA outperforms the popular stochastic frontier approach and the ‘within’ ordinary least squares estimator for realistic parameterizations of a productivity model. Although RTFAs formal statistical properties are unknown, we argue, based on these simulation experiments, that RTFA is a useful complement to existing methods.