Efficiency measurement using a latent class stochastic frontier model

By Luis Orea, Subal C. Kumbhakar. 2004

382 citations recorded by the source corpus.

Abstract.Efficiency estimation in stochastic frontier models typically assumes that the underlying production technology is the same for all firms. There might, however, be unobserved differences in technologies that might be inappropriately labeled as inefficiency if such variations in technology are not taken into account. We address this issue by estimating a latent class stochastic frontier model in a panel data framework. An application of the model is presented using Spanish banking data. Our results show that bank-heterogeneity can be fully controlled when a model with four classes is estimated.

Subfields: Economics and Econometrics, Management Science and Operations Research

View Paper: https://www.semanticscholar.org/paper/5ab74335123ecb7577b8bb78ea470ceb80a8fc08

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

1. William H. Greene
2. C. O'Donnell
3. D. Rao
4. A. Josiassen
5. A. Assaf
6. Carlos Pestana Barros
7. G. Battese
8. C. von Hirschhausen

In Management Science and Operations Research

1. William H. Greene
2. C. O'Donnell
3. A. Josiassen
4. D. Rao
5. A. Assaf
6. G. Battese
7. Carlos Pestana Barros
8. Inmaculada C Álvarez

Citations in the corpus

• Metafrontier frameworks for the study of firm-level efficiencies and technology ratios (2008, methodology): “…statistical methods for determining and/or confirming the number of groups (and group membership) range from estimating and testing the coefficients of dummy-variable models, to estimating and testing the parameters of mixtures models (e.g., Orea and Kumbhakar 2004; O’Donnell and Griffiths 2006).”
• Hotel efficiency: A bootstrapped metafrontier approach (2010, background): “Other advanced models such as the Bayesian stochastic frontier, random frontier, and latent frontier models are also yet to reach the hospitality and tourism literature (Lewis and Anderson, 1999; Greene, 2005; Orea and Kumbhakar, 2004).”
• The Econometric Approach to Efficiency Analysis (2008, methodology): “This model lends itself well to either Bayesian (Tsionas and Greene, 2003) or classical (Orea and Kumbhakar, 2004; Greene, 2004a, 2005; Tsionas and Greene, 2003) estimation methods.”
• Quo vadis efficiency analysis of water distribution? A comparative literature review (2009, background): “Another possibility could be the latent classes approach (Kumbhakar and Orea, 2004) using stochastic frontier methods.”
• Objective vs. subjective fuel poverty and self-assessed health (2020, neutral): “As suggested by Orea and Kumbhakar (2004), we consider this as evidence that a model with three classes (or more) is over-specified.”
• A new stochastic frontier model with cross-sectional effects in both noise and inefficiency terms (2019, positive): “The so-called WH model uses Wang and Ho (2010) and Orea and Kumbhakar (2004) specification of 𝑢𝑢𝑖𝑖𝑖𝑖 = ℎ𝑖𝑖𝑖𝑖 · 𝑢𝑢𝑖𝑖∗, where the 𝑢𝑢𝑖𝑖∗ term follows a half-normal distribution.”
• Reconsidering heterogeneity in panel data estimators of the stochastic frontier model (2005, methodology): “(An application to the Spanish banking system is given in Orea and Kumbhakar (2004).)”