Consistent estimation of the fixed effects stochastic frontier model

Chen, Yiyi; Schmidt, Peter; Wang, Hung‐Jen

doi:10.1016/j.jeconom.2013.05.009

Cited by 150 publications

(148 citation statements)

References 17 publications

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“…We think this o↵ers more flexibility than provided by the likelihood methodology of Chen et al (2014). We exemplify this by deriving consistent estimators of both the half-normal-normal and the gamma-normal stochastic frontier models.…”

Section: Discussionmentioning

confidence: 99%

“…We admire the e↵ort Chen et al (2014) have given proof of by actually deriving a likelihood function of the within transformation of the normal-half-normal TFE model proposed by Greene. However, in this study we develop a more straightforward way to derive consistent estimators of classes of frontier models.…”

Section: Introductionmentioning

confidence: 99%

“…The model proposed by Greene varies over time due unobserved factors. Chen et al (2014) proposes a consistent estimator based on Greene's model and they derive the distribution of the composed error for the within transformed model where the fixed e↵ects have been removed. Based on the within transformed model Chen et al (2014) derives a likelihood function which does not depend on the fixed e↵ects and therefore argue their estimator does not su↵er from the incidental parameters problem.…”

Section: Introductionmentioning

confidence: 99%

“…Chen et al (2014) proposes a consistent estimator based on Greene's model and they derive the distribution of the composed error for the within transformed model where the fixed e↵ects have been removed. Based on the within transformed model Chen et al (2014) derives a likelihood function which does not depend on the fixed e↵ects and therefore argue their estimator does not su↵er from the incidental parameters problem. Their estimator should be consistent and asymptotic normal, which they conclude with a statement "that the MLE based on a correctly specified likelihood is consistent, for "regular" problems".…”

Section: Introductionmentioning

confidence: 99%

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Consistent method of moments estimation of the true fixed effects model

Wikström

2015

Economics Letters

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Abstract. A couple a years ago William H. Greene introduced the so called 'True fixed e↵ects estimator' (TFE), which is intended to separate between heterogeneity and e ciency in stochastic frontier analysis. We would say that it has had huge impact on applied stochastic frontier analysis. One problem with the original TFE estimator, is that it is biased in cases with finite time observations. For the normal-half-normal model this problem was solved by Chen et al. (2014) based on maximum likelihood estimation of the within-transformed model. In this study we show the possibilities with method of moment estimation. This approach is more straightforward computational and is more flexible than maximum likelihood estimation since the estimators are not as dependent on the distributional assumptions and do not hinges on an explicit distribution of the random error. We only assume symmetry and for more complicated models also a fixed fourth order cumulant.

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Section: Discussionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Consistent method of moments estimation of the true fixed effects model

Wikström

2015

Economics Letters

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“…The error variances are important in the stochastic frontier context because they affect the extraction of inefficiency scores from estimated composite residuals (Jondrow et al, 1982). Chen et al (2014) and Belotti and Ilardi (2017) adopted different estimation approaches to estimate Greene's model. The estimators proposed in these studies provide consistent estimates of the frontier parameter vector β and composite error variance 2 σ even for small N (number of firms) and T (time observations for each firm).…”

Section: Introductionmentioning

confidence: 99%

Modelling Efficiency Effects in a True Fixed Effects Stochastic Frontier

Paul

Shankar

2018

SSRN Journal

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Markup estimation: A comparison of contemporary methods at the example of European food retailers

Koppenberg

Hirsch

2021

Agribusiness

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We compare the economic and econometric assumptions of two contemporary procedures for the estimation of markups, the stochastic frontier approach (SFA) and the production function approach (PFA), and apply them to EU food retailing over the period 2010–2018. Although, the estimates of the underlying technology of the two methods are similar, our results suggest that the PFA leads to significantly larger markups, yielding approximated excess consumer expenditures 58.14%–313.33% larger than predicted by the SFA. In addition, the correlation of markups between the two methods is low. This can have implications for the consistency of policy recommendations based on the SFA and the PFA as they yield different outcomes with respect to the state of competition in a market. Last, we find a link between market concentration and markups for the PFA pointing towards adverse effects of further concentration on consumer welfare, whereas our results show no evidence for a relationship between SFA markups and market concentration. [EconLit Citations: D22, D43, L11, L13, L81, Q18]

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Consistent estimation of the fixed effects stochastic frontier model

Cited by 150 publications

References 17 publications

Consistent method of moments estimation of the true fixed effects model

Consistent method of moments estimation of the true fixed effects model

Modelling Efficiency Effects in a True Fixed Effects Stochastic Frontier

Markup estimation: A comparison of contemporary methods at the example of European food retailers

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