Interpreting and Testing the Scaling Property in Models where Inefficiency Depends on Firm Characteristics

By Antonio Álvarez, Christine E. Amsler, Luis Orea, P. Schmidt. 2006

230 citations recorded by the source corpus.

Let u ≥ 0 be technical inefficiency, let z be a set of variables that affect u, and let δ be the parameters of this relationship. The model satisfies the scaling property if u(z, δ) can be written as a scaling function h(z, δ) times a random variable u* that does not depend on z. This property implies that changes in z affect the scale but not the shape of u(z,δ). This paper reviews the existing literature and identifies models that do and do not have the scaling property. It also discusses practical advantages of the scaling property. The paper shows how to test the hypothesis of scaling, and other interesting hypotheses, in the context of the model of Wang, Journal of Productivity Analysis, 2002. Finally, two empirical examples are given.

Subfields: Economics and Econometrics, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/10de16524e845a2cfc81b1f24a9fdd5ac8c28825

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Economics and Econometrics

In Management Science and Operations Research

Citations in the corpus

The Econometric Approach to Efficiency Analysis (2008, background): “Which form, input or output, is appropriate for a given setting? Alvarez et al. (2004) suggested that a given firm could be operating in either regime at any time.”
Some models for stochastic frontiers with endogeneity (2016, background): “Alvarez et al. (2006) have studied and argued in favour of the scaling property in the context of models with environmental variables.”
Estimating fixed-effect panel stochastic frontier models by model transformation (2010, unknown): “2 Alvarez et al. (2006) assumed that the basic distribution is u∗it , although they briefly mentioned u∗i as another possible modeling strategy for panel data (p. 205). 3 The condition requires that zit contains at least one variable which changes values over time. It is noteworthy that the model in”
Efficiency Analysis: A Primer on Recent Advances (2014, methodology): “This is similar to the suite of tests presented in Alvarez et al. (2006) to test for the scaling property, albeit in a maximum likelihood framework.”