On the choice of functional form in stochastic frontier modeling

Abstract

This paper examines the effect of functional form specification on the estimation of technical efficiency using a panel data set of 125 olive-growing farms in Greece for the period 1987–93. The generalized quadratic Box-Cox transformation is used to test the relative performance of alternative, widely used, functional forms and to examine the effect of prior choice on final efficiency estimates. Other than the functional specifications nested within the Box-Cox transformation, the comparative analysis includes the minflex Laurent translog and generalized Leontief that possess desirable approximation properties. The results indicate that technical efficiency measures are very sensitive to the choice of functional specification. Perhaps most importantly, the choice of functional form affects the identification of the factors affecting individual performance – the sources of technical inefficiency. The analysis also shows that while specification searches do narrow down the set of feasible alternatives, the identification of the most appropriate functional specification might not always be (statistically) feasible. Copyright Springer-Verlag Berlin Heidelberg 2003Key words: Stochastic frontiers, functional specifications, Box-Cox transformation, technical efficiency, Greek olive oil., JEL Classification System Numbers: C12, C13, C23, C52, Q12,

Produktivitas dan Efisiensi Teknis Usahatani Padi Organik Lahan Sawah

“…Karakteristik yang cukup penting dari model produksi frontier untuk mengestimasi efisiensi teknis adalah adanya pemisahan dampak dari shok variabel eksogen terhadap output dengan kontribusi variasi dalam bentuk efisiensi teknis (Giannakas et al 2003). Dengan kata lain, aplikasi metode ini dimungkinkan untuk mengestimasi ketidakefisienan suatu proses produksi tanpa mengabaikan kesalahan baku dari modelnya.…”

“…Dengan kata lain, aplikasi metode ini dimungkinkan untuk mengestimasi ketidakefisienan suatu proses produksi tanpa mengabaikan kesalahan baku dari modelnya. Hal ini dimungkinkan karena kesalahan baku (error term) dalam model, E terdiri dari dua kesalahan baku yang keduanya terdistribusi secara bebas atau normal dan sama untuk setiap observasi dimana yang pertama adalah tipikal kesalahan baku yang ada dalam suatu model (yaitu: V) dan yang lain untuk mempresentasikan ketidakefisienan (yaitu: U), dan E = V -U, (Baek and Pagan, 2003;Giannakas et al, 2003). U i adalah salah satu kesalahan baku yang menyusun kesalahan baku (error term) dalam model yang menggambarkan ketidakefisienan teknik suatu usahatani dan bernilai positif, sehingga makin besar nilai U i makin besar ketidakefisienan teknik suatu usahatani.…”

Factors Affecting GRDP and Efficiency Level of Food Crops Sub-sector in East Java

“…Rather important characteristics of the Stochastic production frontier for technical efficiency estimation was separating impact of exogenous variable shock towards output with contribution of variance in the form of inefficiency (Giannakas, et al 2003).…”

A Meta-Frontier Function for the Estimation of Islamic and Conventional Banks’ Cost and Revenue Efficiency: The Case of Malaysia from 2006 to 2012

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