I want to add my two cents to Scott's advice pertaining to
"environmental factors" in the inefficiency equation. Consider a
flexible/general specification of the inefficiency distribution
u~|N(mu, sigma2)|. If environmental factors are desired, one "should"
be able to add those variables through either mu, sigma2, or both.
However, Stata's current -frontier- model only allows for the
following configurations.
(1) mu=0, and sigma2=varlist;
(2) mu=varlist, and sigma2=constant.
It does not support at least the following configurations:
(3) mu=constant, and sigma2=varlist;
(4) mu=varlist, and sigma2=varlist.
Hung-Jen Wang (2002 Journal of Productivity Analysis, p.241-53) shows
why model (4) is particularly desirable. I think he provides his
Stata program, which should estimate all the models above, on his web
site (try search his name on google).
-- Eddy
Scott Merryman wrote:
> Mahmut,
> I am sending this to the entire list, as other people may find it
of use or I
> might say something dumb which others will catch.
> One possibility would be to use a fixed effects model, using
-frontier- with
> the -uhet- option to model the inefficiency effects.
> Below are some comments I made to a previous question that you
might find
> useful.
.....
> The next question is: do you include these fixed effects (and/or
other
> factors) in production function or in the inefficiency equation
> (using -uhet- you can possibly solve two problems at once -
correcting for
> heteroskedasticity and incorporating environmental factors on
efficiency,
> see Kumbhakar and Lovell, 2000 "Stochastic Frontier Analysis").
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