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Re: st: technical efficiency using -xtrc-

From   "Scott Merryman" <>
Subject   Re: st: technical efficiency using -xtrc-
Date   Wed, 6 Feb 2008 14:18:10 -0600

Why are you using -xtrc- to estimate efficiency and not -frontier- or
-xtfrontier- ?


On Feb 4, 2008 2:48 AM, Viktor Slavtchev <> wrote:
> Dear all,
> I wish to estimate the technical efficiency at firm level in panel data.
> The production function (Cobb-Douglas) is considered to have one output
> and one input, y = a * x^beta
> After taking logs of both sides I try to estimate the following equation:
> y[i,t]=alpha[i] + beta[i]*x[i,t] + e[i,t].
> The technical efficiency can be computed as:
> TE[i,t]=exp(y[i,t] - y'[i,t]),
> where y[i,t] is the firm's actual output (not the estimated).
> y'[i,t] is the technical frontier computed considering the maximum
> values for alpha and beta: y'[i,t]=max_i(alpha[i]) +
> max_i(beta[i])*x[i,t] + e[i,t].
> That is the firm's observed output is compared to the maximum possible
> output, i.e. if the firm's production function would have the largest
> possible intercept and the largest possible slope.
> To estimate the alpha and beta I use -xtrc-. However, and that's my
> problem, the interval for the estimates of both, alpha and beta is huge.
> Considering the slope (beta), the values become in some cases even
> negative. Given the huge variation in alpha and beta, the efficiency
> measure appears in some cases implausible small.
> Does anybody has more experience with estimating efficiency? Any help is
> greatly appreciated.
> Best regards,
> viktor
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