Skip to main content
Article
A Monte Carlo Study of Efficiency Estimates from Frontier Models
Center for Policy Research
  • William Clinton Horrace, Syracuse University. Center for Policy Research
  • Seth O. Richards
Description/Abstract

Parametric stochastic frontier models yield firm-level conditional distributions of inefficiency that are truncated normal. Given these distributions, how should one assess and rank firm-level efficiency? This study compares the techniques of estimated (a) the conditional means of inefficiency and (b) probabilities that firms are most or least efficient. Monte Carlo experiments suggest that the efficiency probabilities are more reliable in terms of mean absolute percent error when inefficiency has large variation across firms. Along the way we tackle some interesting problems associated with simulating and assessing estimator performance in the stochastic frontier environment.

Document Type
Working Paper
Date
1-1-2007
Keywords
  • Truncated normal,
  • stochastic frontier,
  • efficiency,
  • multivariate probabilities.
Language
English
Series
Working Papers Series
Disciplines
Additional Information
Harvest from RePEc at http://repec.org
Source
Metadata from RePEc
Citation Information
William Clinton Horrace and Seth O. Richards. "A Monte Carlo Study of Efficiency Estimates from Frontier Models" (2007)
Available at: http://works.bepress.com/horrace/10/