Stochastic frontier models

Wang, Hung-Jen (2006): Stochastic frontier models. Published in: invited article for The New Palgrave Dictionary of Economics, 2nd edition, Palgrave Macmillan (2007)

Abstract

The stochastic frontier model was first proposed in the context of production function estimation to account for the effect of technical inefficiency. The inefficiency causes actual output to fall below the potential level (that is, the production frontier) and also raises production cost above the minimum level (that is, the cost frontier). Recent applications of the model are found in many fields of study including labour, finance, and economic growth. In these applications, the observed outcome (of wages, investment, and so on) is modelled as being deviating from a frontier level in one direction owing to factors such as information asymmetry.

• Item Type: MPRA Paper
• Language: English
• Keywords: aftermarkets; allocative inefficiency; convergence; copulas; cost functions; duality; financing constraints; fixed-effect panel estimators; labour market search models; likelihood functions; nonparametric estimation; production function estimation; production functions; semiparametric estimation; stochastic cost frontiers; stochastic frontier models; technical inefficiency; technological catch-up; truncated distributions
• Subjects: C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C13 - Estimation: General; C - Mathematical and Quantitative Methods > C1 - Econometric and Statistical Methods and Methodology: General > C14 - Semiparametric and Nonparametric Methods: General; C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C24 - Truncated and Censored Models ; Switching Regression Models ; Threshold Regression Models

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