Derivation of marginal effects of determinants of technical inefficiency

- We model the environmental variables such that the mean and variance of error term are functions of them.
- We derive the marginal effects of an environmental variable on the JLMS estimator.
- We apply the modeling framework and formula of marginal effects to a banking data set.

In efficiency studies using the stochastic frontier approach, the main focus is to explain inefficiency in terms of some exogenous variables and computation of marginal effects of each of these determinants. Although inefficiency is estimated by its mean conditional on the composed error term (the Jondrow et al., 1982 estimator), the marginal effects are computed from the unconditional mean of inefficiency (Wang, 2002). In this paper we derive the marginal effects based on the Jondrow et al. estimator and use the bootstrap method to compute confidence intervals of the marginal effects.