Preface
PART I GENERAL INFORMATION
1 Introduction
1.1 What This Book Is About
1.2 Who Should Read This Book?
1.3 The Structure of This Book
2 Production, Distance, Cost, and Profit Functions
2.1 Introduction
2.2 The Production Function and Technical Efficiency
2.2.1 Input-Oriented and Output-Oriented Technical Inefficiency
2.2.2 Non-Neutral Technical Inefficiency
2.3 Statistics from Production Functions
2.3.1 Homogeneity and Returns to Scale
2.3.2 Substitutability
2.3.3 Separability
2.3.4 Technical Change
2.4 Transformation of Production Functions
2.5 Functional Forms of Production Functions
2.5.1 The Cobb-Douglas (CD) Production Function
2.5.2 The Generalized Production Function (GPF)
2.5.3 The Transcendental Production Function
2.5.4 The Translog Production Function
2.6 Multiple Output Production Technology (Distance Functions)
2.6.1 Distance Functions
2.6.2 The Translog Input Distance Function
2.6.3 The Translog Output Distance Function
2.7 The Transformation Function Formulation
2.7.1 The Transformation Function with Inefficiency
2.8 Allocative Inefficiency
2.8.1 Cost Minimization and Allocative Inefficiency
2.8.2 Profit Maximization and Allocative Inefficiency
2.9 The Indirect Production Function
2.9.1 Modeling
PART II SINGLE EQUATION APPROACH: PRODUCTION, COST, AND
PROFIT
3 Estimation of Technical Efficiency in Production Frontier
Models Using Cross-Sectional Data
3.1 Introduction
3.2 Output-Oriented Technical Efficiency
3.3 Estimation Methods: Distribution-Free Approaches
3.3.1 Corrected OLS (COLS)
3.3.2 Corrected Mean Absolute Deviation (CMAD)
3.3.3 Thick Frontier Approach
3.4 Estimation Methods: Maximum Likelihood Estimators
3.4.1 A Skewness Test on OLS Residuals
3.4.2 Parametric Distributional Assumptions
3.4.3 Half-Normal Distribution
3.4.4 Truncated-Normal Distribution
3.4.5 Truncated Distribution with the Scaling Property
3.4.6 The Exponential Distribution
3.5 Input-Oriented Technical Inefficiency
3.6 Endogeneity and Input and Output Distance Functions
4 Estimation of Technical Efficiency in Cost Frontier Models
Using Cross-Sectional Data
4.1 Introduction
4.2 Input-Oriented Technical Inefficiency
4.2.1 Price Homogeneity
4.2.2 Monotonicity and Concavity
4.3 Estimation Methods: Distribution-Free Approaches
4.3.1 Corrected OLS
4.3.2 Cases with No or Little Variation in Input Prices
4.3.3 Thick Frontier Approach
4.3.4 Quantile-Regression-Based TFA
4.4 Estimation Methods: Maximum Likelihood Estimators
4.4.1 Skewness Test on OLS Residuals
4.4.2 The Half-Normal Distribution
4.4.3 The Truncated-Normal, Scaling, and Exponential Models
4.5 Output-Oriented Technical Inefficiency
4.5.1 Quasi-Fixed Inputs
4.5.2 Estimation Methods
5 Estimation of Technical Efficiency in Profit Frontier Models Using Cross-Sectional Data
5.1 Introduction
5.2 Output-Oriented Technical Inefficiency
5.3 Estimation Methods: Distribution-Free Approaches
5.4 Estimation Methods: Maximum Likelihood Estimators
5.5 Input-Oriented Technical Inefficiency
5.6 Estimation Methods: Distribution-Free Approaches
5.7 Estimation Methods: Maximum Likelihood Estimators
PART III SYSTEM MODELS WITH CROSS-SECTIONAL DATA
6 Estimation of Technical Efficiency in Cost Frontier Models
Using System Models with Cross-Sectional Data
6.1 Introduction
6.2 Single Output, Input-Oriented Technical Inefficiency
6.3 Estimation Methods: Distribution-Free Approach
6.4 Estimation Methods: Maximum Likelihood Estimators
6.4.1 Heteroscedasticity, Marginal Effects, Efficiency Index,
and Confidence Intervals
6.5 Multiple Outputs, Input-Oriented Technical Inefficiency
6.6 Estimation Methods
6.7 Multiple Outputs, Output-Oriented Technical Inefficiency
7 Estimation of Technical Efficiency in Profit Frontier
Models Using System Models with Cross-Sectional Data
7.1 Introduction
7.2 Single Output, Output-Oriented Technical Inefficiency
7.3 Estimation Methods: Distribution-Free Approaches
7.4 Estimation Methods: System of Share Equations, Maximum
Likelihood Estimators
7.5 Estimation Methods: Imposing Homogeneity Assumptions, Maximum
Likelihood Estimators
7.6 Single Output, Input-Oriented Technical Inefficiency
7.7 Multiple Output Technology
7.7.1 Output-Oriented Technical Inefficiency
7.7.2 Estimation Methods
PART IV THE PRIMAL APPROACH
8 Estimation of Technical and Allocative Efficiency in Cost
Frontier Models Using System Models with Cross-Sectional Data: A Primal System
Approach
8.1 Introduction
8.2 Cost System Approach with Both Technical and Allocative Inefficiency
8.3 The Primal System Approach with Technical and Allocative
Inefficiency
8.4 Estimation Methods When Algebraic Formula Can Be Derived
8.4.1 The Cobb-Douglas Production Function
8.4.2 The Generalized Production Function
8.5 Estimation Methods When Algebraic Formula Cannot Be Derived
8.5.1 Translog Production Function
9 Estimation of Technical and Allocative Efficiency in
Profit Frontier Models Using System Models with Cross-Sectional Data: A Primal
System Approach
9.1 Introduction
9.2 The Profit Function Approach
9.3 The Primal Approach of Profit Maximization with Both Technical and
Allocative Inefficiency
9.4 Estimation Methods: Maximum Likelihood Estimators
9.4.1 Technical and Allocative Inefficiency Effect on Profit
PART V SINGLE EQUATION APPROACH WITH PANEL DATA
10 Estimation of Technical Efficiency in Single Equation
Panel Models
10.1 Introduction
10.2 Time-Invariant Technical Inefficiency (Distribution-Free) Models
10.2.1 The Fixed-Effects Model (Schmidt and Sickles [1984])
10.2.2 The Random-Effects Model
10.3 Time-Varying Technical Inefficiency Models
10.3.1 Time-Varying Technical Inefficiency Models Using
Distribution-Free Approaches
10.3.2 Time-Varying Inefficiency Models with Deterministic and
Stochastic Components
10.4 Models That Separate Firm Heterogeneity from Inefficiency
10.5 Models That Separate Persistent and Time-Varying Inefficiency
10.5.1 The Fixed-Effects Model
10.5.2 The Random-Effects Model
10.6 Models That Separate Firm Effects, Persistent Inefficiency and
Time-Varying Inefficiency
11 Productivity and Profitability Decomposition
11.1 Introduction
11.2 Productivity, Technical Efficiency, and Profitability
11.3 Productivity and Profitability Decomposition
11.3.1 Total Factor Productivity Decomposition: The Production
Function Approach
11.3.2 Productivity Decomposition: The Cost Function Approach
11.3.3 Multiple Outputs
PART VI LOOKING AHEAD
12 Looking Ahead
12.1 Latent Class Models
12.2 Zero-Inefficiency SF Models
12.3 Selectivity in SF Models
12.4 Modeling Good and Bad Outputs That Separate Technical Efficiency
from Environmental Efficiency
12.5 Two-Tier SF Models
12.6 SF Models with Copula Functions (To Introduce Correlation
between the Noise and Inefficiency Terms)
12.7 Nonparametric and Semiparametric SF Models
12.8 Testing Distribution Assumptions
APPENDIX
A Deriving the Likelihood Functions of Single Equation
Frontier Models
B Deriving the Efficiency Estimates
C Deriving Confidence Intervals
D Bootstrapping Standard Errors of Marginal Effects on
Inefficiency
E Software and Estimation Commands
E.1 Download and Install the User-Written Programs
E.2 Download the Empirical Data and the Do-Files
E.3 Cross-Sectional Models and Basic Utilities
E.3.1 sfmodel
E.3.2 sf_init
E.3.3 sf_srch
E.3.4 sf_transform
E.3.5 sf_predict
E.3.6 sf_mixtable
E.4 System Models
E.4.1 sfsystem
E.4.2 showini
E.4.3 sfsysem_profitshares
E.5 Panel Data Models
E.5.1 sfpan
E.5.2 sf_fixeff
E.6 Primal Models
E.6.1 sfprim
E.6.2 sf_cst_compare
E.6.3 sf_pft_compare
Bibliography
Index
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