Yes, I believe Stata calculates efficiency as
TE_i= E(Y_i|U_i, X_i)/E(Y_i|U_i=0, X_i)
where Y_i is the production or actual cost of the i-th firm. In a
production frontier efficiency will range from 0 to 1 while efficiency in
cost frontier will ranges from 1 to infinity. This is how Coelli defined
efficiency (for instance, in "A Guide to FRONTIER Version 4.1" (1996))
However, Kumbhakar and Lovell (2000, "Stochastic Frontier Analysis") do
define cost efficiency as
CE_i= E(Y_i|U_i=0, X_i)/E(Y_i|U_i, X_i)
Scott
> -----Original Message-----
> From: [email protected] [mailto:owner-
> [email protected]] On Behalf Of Dev Vencappa
> Sent: Sunday, June 19, 2005 7:58 PM
> To: [email protected]
> Subject: Re: st: option predict te for cost frontier in stata 8.2
>
> >
> >
> Stata users,
> I made a typo in the previous email which may have confused some users,
> so I'm posting it again.
> I was running the frontier command for both a production and a cost
> function. While I understand that the option predict te retrieves the
> efficiency scores ranging between 0 and 1, when I was running the cost
> function I was a bit confused with the scores retrieved from the cost
> frontier. I got values ranging from close to 1 onwards, and I understand
> these need to be bound between 0 and 1. Am I right in assuming that the
> correct cost efficiency scores are just the inverse of the predicted
> efficiency scores from the predict te option? I suppose Stata is simply
> computing these scores in a similar way as for the production frontier,
> i.e. actual output/maximum output, so actual cost/minimum cost instead of
> minimum cost/actual cost?
>
> Thanks in advance for any guidance on this.
>
> Dev
>
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