Simulation designs for production frontiers

Abstract

There are very few simulation experiments in the literature of multiple input-output production frontiers. Among these studies, simulations are usually designed for the case of one single output, according to their purpose of the studies. In this study, a simulation framework is proposed to examine whether a multiple input-output production frontier model is satisfactory, according to its objectives, in a controlled environment. The mathematical foundation is developed to generate multiple input-output production frontiers including different types of returns to scale (RTS) and inefficiency distributions. From the provided framework, the number of units, the number of inputs, the number of outputs, the number of efficient units, the number of inefficient units, the number of outliers, the RTSs, and the distribution of inefficiencies and outliers can be controlled. The performance of a theoretical production frontier model can then be examined on random datasets with multiple input-output variables.