A comparison of stochastic frontier approaches for estimating technical inefficiency and total factor productivity

Abstract

This article compares standard stochastic frontier models for panel data with a number of recently developed models which attempt to control for unobserved heterogeneity in the inefficiency component. Results are used to construct a generalized Malmquist Total Factor Productivity (TFP) index for the Irish tillage sector. While our application yields similar general TFP trends across models, it is evident that this new class of model leads to fewer theoretical inconsistencies in the production frontier. Furthermore, inefficiency estimates across models are critically compared and the potential benefits of controlling for unobserved heterogeneity are highlighted.