# Re: st: technical efficiency using -xtrc-

 From Viktor Slavtchev <[email protected]> To [email protected] Subject Re: st: technical efficiency using -xtrc- Date Thu, 07 Feb 2008 09:27:29 +0100

Scott,
thank you very much for recommending -frontier-. I am already aware of -frontier-.
I just wanted to compare both alternative way to measure efficiency (-xtrc- and -frontier-). Just to see whether there are differences, whether the results are 'robust'.
best regards
viktor

Scott Merryman wrote:

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

Scott

On Feb 4, 2008 2:48 AM, Viktor Slavtchev <[email protected]> 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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