Abstract
This paper develops a non-linear stochastic frontier (SF) model. The main advantage of this model over standard SF models is that the model does not need an assumption for the distributional form of the inefficiency component. Another advantage of the developed model is that it can be used to estimate profit functions consistently since it allows for negative profits.The paper shows that the model behaves well on simulated data. Moreover, the suggested model is applied and compared with a standard SF model one European bank data. The obtained efficiency estimates from both models are in line with each other but there are differences.
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