Further results on estimating inefficiency effects in stochastic frontier models

Abstract

Paul and Shankar [Satya Paul, Sriram Shankar, On Estimating Efficiency Effects in a Stochastic Frontier Model, European Journal of Operational Research (2018)] proposed an inefficiency effects stochastic frontier model which is easy to implement and avoids some of the difficulties of existing models. Unfortunately, the model has the restrictive feature that the ratio of the inefficiency effects of any two environmental variables remains fixed independently of the values of the variables. We modify the model so that this restriction can be avoided. Moreover, we provide a substantive extension of the model under quite general endogeneity assumptions. In turn, the model can be estimated using the Generalized Method of Moments technique allowing identification of efficiency estimates and inefficiency effects.