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Re: st: Stochastic Frontier Analysis, time-varying effects cost frontier


From   Federico Belotti <f.belotti@gmail.com>
To   statalist@hsphsun2.harvard.edu
Subject   Re: st: Stochastic Frontier Analysis, time-varying effects cost frontier
Date   Thu, 16 May 2013 13:17:09 +0200

While I perfectly agree with Nick, I would like to be sure that your problem is not the dummy variables trap. What do you mean for "...(one from each set)..."?

Federico

On May 16, 2013, at 12:57 PM, Nick Cox wrote:

> The implication seems to be that Stata [sic] is being awkward or
> difficult here, but it can hardly do otherwise.
> 
> The best answer, I think, is to include only those indicator variables
> whose coefficients you want to talk about substantively. This can be
> regarded as an example of a more general principle, not to use a model
> you don't understand.
> 
> Nick
> njcoxstata@gmail.com
> 
> 
> On 16 May 2013 11:50, Alexander <alex.lee.kotra@gmail.com> wrote:
>> Dear Federico,
>> 
>> Thanks for your reply.
>> 
>> I have several firm types measures represented with several sets of
>> dummy variables
>> 
>> When trying to implement the -emean option, should I include all these
>> dummies all at once? Or should I run them separately?
>> 
>> If I do the former, STATA omits several dummies (one from each set)
>> because of collinearity and I am not sure as to how to interpret the
>> results.
>> 
>> 
>> Best regards,
>> Alex
>> 
>> 
>> On Mon, May 13, 2013 at 3:51 PM, Federico Belotti <f.belotti@gmail.com> wrote:
>>> Dear Alexander,
>>> 
>>> my comments below
>>> 
>>> On May 11, 2013, at 6:23 PM, Alexander Lee wrote:
>>> 
>>>> Dear Statalist members,
>>>> 
>>>> Having read previous posts on the Stochastic Frontier Analysis, I
>>>> still have questions regarding
>>>> its implementation, particularly the so-called Battese and Coeli
>>>> (1995) random time-varying effects
>>>> model is of interest to me.
>>>> 
>>>> My work includes a panel data on several firms, I attempt to explore
>>>> their cost efficiency,
>>>> change of the efficiency scores with time and the impact of the bank's
>>>> type on efficiency (ownership,
>>>> location, etc.). I do that with the -sfpanel command, realized in his
>>>> paper by Prof. F. Belotti. I do
>>>> not assume heteroscedasticity neither in the inefficiency term nor in
>>>> the error term.
>>>> 
>>>> I have some questions on that and would appreciate any insights:
>>>> 
>>>> 
>>>> 1. When I implement a translog form of the frontier model, the
>>>> iterations won't converge
>>>> 
>>>> (BFGS stepping has contracted, resetting BFGS Hessian)
>>>> 
>>>> 
>>>> I believe that all the data is properly scaled and there is a larger
>>>> number of observations.
>>>> 
>>>> I have also tried to do this with -difficult option.
>>>> 
>>> 
>>>> 
>>>> What could be a reason for this?
>>> 
>>> Did you impose linear homogeneity in inputs' prices? It is worth noting that such a flexible functional form could be very difficult to estimate, especially in a cost frontier framework.
>>> 
>>>> 
>>>> 2. If I could estimate the Stochastic Frontier model, which includes
>>>> total costs as dependant
>>>> variable and input prices and outputs as regressors and obtain the
>>>> efficiency scores, I fail to
>>>> understand how the firm types should be accounted for in this
>>>> one-stage model? Should they simply
>>>> be included in the frontier model as new (dummy) variables? However in
>>>> the original 1995 paper I
>>>> could see that firms' effects are included in a separate Inefficiency
>>>> Model, does that mean that the
>>>> inefficiencies obtained from the frontier should be regressed on firm
>>>> types in a separate exercise?
>>> 
>>> -sfpanel- allows to estimate the Battese and Coelli (1995) model using the following syntax
>>> 
>>> sfpanel c y p1 p2, cost model(bc95) emean(x1 x2)
>>> 
>>> where the option -emean(x1 x2)- allows to simultaneously estimate the so-called inefficiency effects.
>>> Often, the inclusion of exogenous variables to model the mean of the inefficiency could help the identification of the inefficiency term itself (increasing the convergence rate).
>>> 
>>> hth
>>> Federico
>>>> 
>>>> 
>>>> Thank you,
>>>> 
>>>> Best regards
>>>> Alexander Lee
>>>> *
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>>> 
>>> --
>>> 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
>>> 
>>> 
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-- 
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


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