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Specification Testing of Production in a Stochastic Frontier Model

Authors: Xu Guo; Gao-Rong Li; Michael McAleer; Wing-Keung Wong;

Specification Testing of Production in a Stochastic Frontier Model

Abstract

Parametric production frontier functions are frequently used in stochastic frontier models, but there do not seem to be any empirical test statistics for the plausibility of this application. In this paper, we develop procedures to test whether or not the parametric production frontier functions are suitable. Toward this aim, we developed two test statistics based on local smoothing and an empirical process, respectively. Residual-based wild bootstrap versions of these two test statistics are also suggested. The distributions of technical inefficiency and the noise term are not specified, which allows specification testing of the production frontier function even under heteroscedasticity. Simulation studies and a real data example are presented to examine the finite sample sizes and powers of the test statistics. The theory developed in this paper is useful for production managers in their decisions on production.

Countries
Netherlands, Spain
Related Organizations
Keywords

Simulations, 5307.15 Teoría Microeconómica, stochastic frontier model, Wild bootstrap, Microeconomía, empirical process, smoothing process, C0, 5302 Econometría, Econometría (Economía), C13, Stochastic frontier model, C14, Specification testing, wild bootstrap, specification testing, ddc:330, Simulations., production frontier function, Empirical process, Production frontier function, D81, Smoothing process, ESE - E&MS, simulations, Econometría

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    popularity
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    Top 10%
    influence
    This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
11
Top 10%
Average
Top 10%
Green
gold