Article ID Journal Published Year Pages File Type
5057820 Economics Letters 2017 4 Pages PDF
Abstract

•Suggestions for users of the Stochastic Ray Production Frontier.•Calculate angles of polar coordinates by a non-recursive approach.•Avoid taking logarithms of angles of polar coordinates.•Address non-invariance to units of measurement of outputs.•Address non-invariance to ordering of outputs.

The stochastic ray production frontier was developed as an alternative to the traditional output distance function to model production processes with multiple inputs and multiple outputs. Its main advantage over the traditional approach is that it can be used when some output quantities of some observations are zero. In this paper, we briefly discuss - and partly refute - a few existing criticisms of the stochastic ray production frontier. Furthermore, we discuss some shortcomings of the stochastic ray production frontier that have not yet been addressed in the literature and that we consider more important than the existing criticisms: taking logarithms of the polar coordinate angles, non-invariance to units of measurement, and ordering of the outputs. We also give some practical advice on how to address the newly raised issues.

Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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