On estimating efficiency effects in a stochastic frontier model

Abstract

This paper proposes a technical efficiency effects model within the framework of stochastic production frontier. The efficiency effects are specified by a standard normal cumulative distribution function of exogenous variables which ensures the efficiency scores to lie in a unit interval. This specification eschews one-sided error term present in almost all the existing inefficiency effects models. The efficiency scores are obtained directly once the parameters of the model are estimated. An empirical exercise based on the widely used Philippines rice farming data illustrates the simplicity and usefulness of the proposed model.