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From |
Reut Levi <rlevi2@student.gsu.edu> |

To |
"statalist@hsphsun2.harvard.edu" <statalist@hsphsun2.harvard.edu> |

Subject |
RE: st: Inefficiency measures greater than one for frontier commands |

Date |
Tue, 23 Apr 2013 19:02:01 +0000 |

Thank you! To clarify and make sure I understand. The syntax: predict VariableName, te would give me inefficiency scores that range from 1 to infinity (for cost functions), right? In addition, here is a conceptual question. The frontier represents 100% efficiency. According to the inefficiency scores described above, banks that receive a score of one are 100% present efficient. Therefore, scores above 1 would represent banks that are operating above the cost frontier and therefore less efficient. Now, how can I interpret those inefficiency scores above one? Is there an accepted way to normalize them to range from 0 to 100%, so I will be able to make a statement such as "bank Y is X% efficient/inefficient"? Thank you for your help and inputs, Reut ________________________________________ From: owner-statalist@hsphsun2.harvard.edu [owner-statalist@hsphsun2.harvard.edu] on behalf of Federico Belotti [f.belotti@gmail.com] Sent: Tuesday, April 23, 2013 12:55 PM To: statalist@hsphsun2.harvard.edu Subject: Re: st: Inefficiency measures greater than one for frontier commands If you are using the -xtfrontier- command the syntax is predict te, te In this way you obtain an estimate of efficiency scores through the Jondrow et al. (1982) formula. Federico On Apr 23, 2013, at 5:35 PM, Reut Levi wrote: > Thank you Federico! > > Do you happen to know if there is a way to predict efficiency scores in STATA, instead of inefficiency scores? > If there is, can you please specify the command syntax? > If there isn't, how should I go about converting the inefficiency scores predicted to represent efficiency levels? > > Thank you very much, > Reut > > ________________________________________ > From: owner-statalist@hsphsun2.harvard.edu [owner-statalist@hsphsun2.harvard.edu] on behalf of Federico Belotti [f.belotti@gmail.com] > Sent: Monday, April 22, 2013 5:54 AM > To: statalist@hsphsun2.harvard.edu > Subject: Re: st: Inefficiency measures greater than one for frontier commands > > Dear Reut, > > in the stochastic frontier framework, "inefficiency" scores ranges from 0 to infinity, while "efficiency" scores are restricted between 0 and 1 by construction since > > TE = exp{-E[su|e]} following Jondrow et al., 1982, > or, > TE = E{exp(s*u)|e} following Battese and Coelli, 1988, > > where s = 1 (s = -1) in the cost frontier (production frontier) case. > > Hope this helps. > Federico > > On Apr 21, 2013, at 2:28 AM, Reut Levi wrote: > >> Dear Statalist members, >> >> I am using the xtfrontier command to estimate inefficiency levels for the U.S banking industry. My data comprised of information from the FFIEC Call Report for the year 2012. It is a large data set with over 29,000 observations. I broke it down by asset size in order to reduce the number of observation and also because the literature suggests that asset size peer group will produce more appropriate inefficiency measures. After breaking down the dataset, the average number of banks in each peer group data set is 650, with observations for 4 quarters, totaling in 2700 data points. All of my variable are in natural logs. >> >> I am using the xtfrontier command with the options ti and cost. I then predict the inefficiency measures using predict with the option u, but some of my inefficiency predications are greater than one. How is it possible? The manual says that the inefficiency measures are restricted to be between 0 and 1. Am I doing something wrong? Or what could explain those measures greater than 1? >> >> I am relatively new to STATA so please take it into consideration in your response. >> Thank you very much, >> Reut >> >> >> * >> * For searches and help try: >> * http://www.stata.com/help.cgi?search >> * http://www.stata.com/support/faqs/resources/statalist-faq/ >> * http://www.ats.ucla.edu/stat/stata/ > > -- > Federico Belotti, PhD > Research Fellow > Centre for Economics and International Studies > University of Rome Tor Vergata > tel/fax: +39 06 7259 5627 > e-mail: federico.belotti@uniroma2.it > web: http://www.econometrics.it > > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/faqs/resources/statalist-faq/ > * http://www.ats.ucla.edu/stat/stata/ > > > > * > * For searches and help try: > * http://www.stata.com/help.cgi?search > * http://www.stata.com/support/faqs/resources/statalist-faq/ > * http://www.ats.ucla.edu/stat/stata/ -- Federico Belotti, PhD Research Fellow Centre for Economics and International Studies University of Rome Tor Vergata tel/fax: +39 06 7259 5627 e-mail: federico.belotti@uniroma2.it web: http://www.econometrics.it * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/faqs/resources/statalist-faq/ * http://www.ats.ucla.edu/stat/stata/ * * For searches and help try: * http://www.stata.com/help.cgi?search * http://www.stata.com/support/faqs/resources/statalist-faq/ * http://www.ats.ucla.edu/stat/stata/

**Follow-Ups**:**Re: st: Inefficiency measures greater than one for frontier commands***From:*Aljar Meesters <aljar.meesters@gmail.com>

**st: Re: Problem with generating component plus residual plot***From:*W R Goe <goe@k-state.edu>

**References**:**st: Inefficiency measures greater than one for frontier commands***From:*Reut Levi <rlevi2@student.gsu.edu>

**Re: st: Inefficiency measures greater than one for frontier commands***From:*Federico Belotti <f.belotti@gmail.com>

**RE: st: Inefficiency measures greater than one for frontier commands***From:*Reut Levi <rlevi2@student.gsu.edu>

**Re: st: Inefficiency measures greater than one for frontier commands***From:*Federico Belotti <f.belotti@gmail.com>

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