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Article
A Monte Carlo Study of Ranked Efficiency Estimates from Frontier Models
Economics - All Scholarship
  • William C Horrace, Syracuse University
  • Seth Richards-Shubik, Carnegie Mellon University
Document Type
Article
Date
1-1-2012
Keywords
  • Truncated normal,
  • Stochastic frontier,
  • Efficiency,
  • Multivariate probabilities
Disciplines
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 estimating (a) the conditional mean of inefficiency and (b) probabilities that firms are most or least efficient. Monte Carlo experiments suggest that the efficiency probabilities are easier to estimate (less noisy) 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 model.

Source
local input
Creative Commons License
Creative Commons Attribution 3.0
Citation Information
William C Horrace and Seth Richards-Shubik. "A Monte Carlo Study of Ranked Efficiency Estimates from Frontier Models" (2012)
Available at: http://works.bepress.com/horrace/16/