Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5096924 | Journal of Econometrics | 2010 | 11 Pages |
Abstract
Traditional panel stochastic frontier models do not distinguish between unobserved individual heterogeneity and inefficiency. They thus force all time-invariant individual heterogeneity into the estimated inefficiency. Greene (2005) proposes a true fixed-effect stochastic frontier model which, in theory, may be biased by the incidental parameters problem. The problem usually cannot be dealt with by model transformations owing to the nonlinearity of the stochastic frontier model. In this paper, we propose a class of panel stochastic frontier models which create an exception. We show that first-difference and within-transformation can be analytically performed on this model to remove the fixed individual effects, and thus the estimator is immune to the incidental parameters problem. Consistency of the estimator is obtained by either Nââ or Tââ, which is an attractive property for empirical researchers.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Hung-Jen Wang, Chia-Wen Ho,