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EconStor
Research . 1999
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Stochastic Frontier Production Function With Errors-In-Variables

Authors: Dhawan, Rajeev; Jochumzen, Peter;

Stochastic Frontier Production Function With Errors-In-Variables

Abstract

This paper develops a procedure for estimating parameters of a cross-sectional stochastic frontier production function when the factors of production suffer from measurement errors. Specifically, we use Fuller's (1987) reliability ratio concept to develop an estimator for the model in Aigner et al (1977). Our Monte-Carlo simulation exercise illustrates the direction and the severity of bias in the estimates of the elasticity parameters and the returns to scale feature of the production function when using the traditional maximum-likelihood estimator (MLE) in presence of measurement errors. In contrast the reliability ratio based estimator consistently estimates these parameters even under extreme degree of measurement errors. Additionally, estimates of firm level technical efficiency are severely biased for traditional MLE compared to reliability ratio estimator, rendering inter-firm efficiency comparisons infeasible. The seriousness of measurement errors in a practical setting is demonstrated by using data for a cross-section of publicly traded U.S. corporations.

Country
Sweden
Related Organizations
Keywords

Technical Efficiency, Stochastic Frontier, ddc:330, Economics, Reliability Ratio, Errors-In-Variables, Errors-In-Variables; Stochastic Frontier; Technical Efficiency; Reliability Ratio, D24, C15, C21, Technica, jel: jel:C21, jel: jel:D24, jel: jel:C15

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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!
0
Average
Average
Average
Green