Title Reconsidering Heterogeneity in Panel Data Estimators of the Stochastic Frontier
Model
Author Greene, William
Affiliation NYU
Source Journal of Econometrics, vol. 126, no. 2, June 2005, pp. 269-303
ISSN 0304-4076
Abstract This paper examines several extensions of the stochastic frontier that account for unmeasured heterogeneity as well as firm inefficiency. The fixed effects model is extended to the stochastic frontier model using results that specifically employ its nonlinear specification. Based on Monte Carlo results, we find that the incidental parameters problem operates on the coefficient estimates in the fixed effects stochastic frontier model in ways that are somewhat at odds with other familiar results. We consider a special case of the random parameters model that produces a random effects model that preserves the central feature of the stochastic frontier model and accommodates heterogeneity. We then examine random parameters and latent class models. In these cases, explicit models for firm heterogeneity are built into the stochastic frontier.
Comparisons with received results for these models are presented in an application to the U.S. banking industry.
Title On Ranking and Selection from Independent Truncated Normal Distributions
Author Horrace, William C
Source Journal of Econometrics, vol. 126, no. 2, June 2005, pp. 335-54
ISSN 0304-4076
Abstract This paper develops probability statements and ranking and selection rules for independent truncated normal populations. An application to a broad class of parametric stochastic frontier models is considered, where interest centers on making probability statements concerning unobserved firm-level technical inefficiency. In particular, probabilistic decision rules allow subsets of firms to be deemed relatively efficient or inefficient at prespecified probabilities. An empirical example is provided.
Title Product Diversification, Production Systems, and Economic Performance in U.S.
Agricultural Production
Author Paul, Catherine J Morrison; Nehring, Richard
Source Journal of Econometrics, vol. 126, no. 2, June 2005, pp. 525-48
ISSN 0304-4076
Abstract The U.S. agricultural sector is experiencing significant structural change. Farm size is rising and activities are broadening, including more off-farm employment, implying economic incentives for larger and more diversified farms, and complementarities among agricultural netputs. We quantify such patterns for farms in the corn belt, by measuring scale economies, and output and input contributions and jointness. We estimate the multi-output and -input production technology by stochastic frontier techniques applied to output and input distance functions. We find that both scope and scale economies have important economic performance implications, and

that an input-oriented framework including off-farm income best characterizes agricultural production.
Title Port Privatization, Efficiency and Competitiveness: Some Empirical Evidence from
Container Ports (Terminals)
Author Tongzon, Jose; Heng, Wu
Source Transportation Research: Part A: Policy and Practice, vol. 39, no. 5, June 2005, pp.
405-24
ISSN 0965-8564
Abstract Few studies have investigated the quantitative relationship between port ownership structure and port efficiency with mixed results. This study applies a stochastic frontier model proposed by Battese and Coelli [Battese, G. E., Coelli, T. J., 1995. A model for technique inefficiency effects in a stochastic frontier production function for panel data. Empirical
Economics 20, 325-332], which incorporates the inefficiency effect, to show whether port privatization is a necessary strategy for ports to gain a competitive advantage. While this stochastic frontier model has been used to a wide number of industries where the technical inefficiency effect is required, this method has rarely been employed to port industry. This study also investigates the determinants of port competitiveness. Both the principal component analysis
(PCA) and the linear regression model are used to examine the effects of identified key factors on port competitiveness. Based on a sample of selected container terminals around the world, the results of this study have shown that private sector participation in the port industry to some extent can improve port operation efficiency, which will in turn increase port competitiveness. Another important determinant of port competitiveness is the adaptability to the customers' demand. All these results provide some policy implications and guidance for port authorities and port operators in formulating effective strategies to improve their competitiveness vis-a-vis rivals.
Title Determinants of Efficiency in Least Developed Countries: Further Evidence from
Nepalese Manufacturing Firms
Author Oczkowski, Edward; Sharma, Kishor
Source Journal of Development Studies, vol. 41, no. 4, May 2005, pp. 617-30
ISSN 0022-0388
Abstract Using a translog stochastic production frontier and maximum likelihood econometric methods, we estimate and model the determinants of firm level efficiency in the Nepalese context.
Our results are broadly in line with theoretical expectations. We find that large firms are more efficient and that a higher capital intensity leads to inefficiency. There is no statistical evidence to suggest that foreign participation leads to efficiency improvements. Also, we do not observe any link between export intensity and efficiency improvement. We find that higher protection leads to inefficiency. Overall, our results suggest that an outward looking industrial strategy, which relies on less intervention and permits the development of large-scale industries, is conducive to efficiency improvement in least developed countries (LDCs) like Nepal.
Title Frontier Expansion and Economic Development
Author Barbier, Edward B
Source Contemporary Economic Policy, vol. 23, no. 2, April 2005, pp. 286-303

ISSN 1074-3529
Abstract Although finding new frontiers or reserves of natural resources to exploit has been the basis of much of global economic development for the past 500 years, frontier-based development does not appear to be producing sustained high rates of growth in today's poorer economies.
Through a two-sector model of frontier expansion and economic growth in a resource-dependent small open economy, this article demonstrates that such expansion will lead inevitably to a boom and bust pattern of long-run development, even if the economy's terms of trade or commodity prices remain unchanged. Initially, it is always optimal for the economy to choose the maximum rate of frontier expansion and thus ensure an immediate economic boom. However, an eventual economic decline is unavoidable. This result provides an alternative explanation of recent empirical evidence that resource-abundant developing countries display lower than expected long-run rates of growth.
Title Employee Motivation, External Orientation and the Technical Efficiency of
Foreign-Financed Firms in China: A Stochastic Frontier Analysis
Author Mok, Vincent; Yeung, Godfrey
Source Managerial and Decision Economics, vol. 26, no. 3, April-May 2005, pp. 175-90
ISSN 0143-6570
Abstract By using a stochastic frontier model, we have identified several firm-specific attributes as determinants of technical efficiency in foreign-financed manufacturing firms in southern China. The empirical results suggest a strong association between efficiency and employee motivation, which includes the use of bonus incentives and flexibility in employment policy. In terms of the external orientation behavior of firms, the findings do not support the export/efficiency relationship. Sample firms with a high degree of export-orientedness were less efficient, possibly due to the high transaction costs in China of exportation. As for the effects of expatriate input on production, our empirical evidence revealed that firms with a relatively high expatriate ratio performed less efficiently than others did. These two findings may have significant implications for the marketing strategies and management (including the localization) of human resources of foreign-financed firms in China.
Title Inter-state Disparities in Health Outcomes in Rural India: An Analysis Using a
Stochastic Production Frontier Approach
Author Kathuria, Vinish; Sankar, Deepa
Source Development Policy Review, vol. 23, no. 2, March 2005, pp. 145-63
ISSN 0950-6764
Abstract In an era of reforms in the health sector and with the role of government in health provision diminishing, emphasis is shifting to making the sector efficient. This article analyses the performance of the rural public health systems of 16 major States in India, using stochastic production frontier techniques and panel data for the period 1986-97. The results show that States differ not only in capacity-building in terms of health infrastructure created, but also in efficiency in using these inputs. There is scope for health systems to re-orient their strategies in order to provide the best health in the most efficient way or at the lowest possible cost.

Title Efficiency and Scale Economies in Transition Economies: Evidence from Poland and the Czech Republic
Author Kasman, Adnan
Source Emerging Markets Finance and Trade, vol. 41, no. 2, March-April 2005, pp. 60-81
ISSN 1540-496X
Abstract This paper examines the cost efficiency and scale economies of banks operating in
Poland and the Czech Republic during the period from 1995 to 2000. A common cost frontier with country-specific environmental variables is estimated for a panel of fifty-four banks. A stochastic frontier model is used to estimate the cost efficiency and economies of scale. The results show the importance of environmental variables in the definition and specification of the common frontier.
It is found that Polish banks are, on average, more efficient than Czech banks. The results further suggest that foreign banks operating in the Czech banking sector have significantly higher efficiency levels than those of domestic banks. Finally, there is evidence of significant economies of scale for small and medium-sized banks, but diseconomies of scale for large-sized banks.
Title "We Got Game!": An Analysis of Win/Loss Probability and Efficiency Differences between the NBA and WNBA
Author McGoldrick, Kimmarie; Voeks, Lisa
Source Journal of Sports Economics, vol. 6, no. 1, February 2005, pp. 5-23
ISSN 1527-0025
Abstract This article provides estimates of differences in game play between the WNBA and
NBA. Game outcome measures that are absolute (win or loss) and relative (ratio of final points) both reveal differential impacts of relative characteristics of play (ratio of shooting percentages, rebounding, assists, turnovers, personal fouls, and differences in steals and blocked shots). A stochastic frontier model is estimated and used to generate (relative) efficiency measures of play that further reveal differences between the two leagues.
Title Bank Performance, Efficiency and Ownership in Transition Countries
Author Bonin, John P; Hasan, Iftekhar; Wachtel, Paul
Source Journal of Banking and Finance, vol. 29, no. 1, Special Issue Jan. 2005, pp. 31-53
ISSN 0378-4266
Abstract Using data from 1996 to 2000, we investigate the effects of ownership, especially by a strategic foreign owner, on bank efficiency for eleven transition countries in an unbalanced panel consisting of 225 banks and 856 observations. Applying stochastic frontier estimation procedures, we compute profit and cost efficiency taking account of both time and country effects directly. In second-stage regressions, we use the efficiency measures along with return on assets to investigate the influence of ownership type. With respect to the impact of ownership, we conclude that privatization by itself is not sufficient to increase bank efficiency as government-owned banks are not appreciably less efficient than domestic private banks. We find that foreign-owned banks are more cost-efficient than other banks and that they also provide better service, in particular if they have a strategic foreign owner. The remaining government-owned banks are less efficient in providing services, which is consistent with the hypothesis that the better banks were privatized first in transition countries.

Title Cost Efficiency in the Latin American and Caribbean Banking Systems
Author Carvallo, Oscar; Kasman, Adnan
Source Journal of International Financial Markets, Institutions and Money, vol. 15, no. 1,
January 2005, pp. 55-72
ISSN 1042-4431
Abstract A common cost frontier with country-specific environmental variables was estimated for a panel of 481 banks from 16 Latin American countries. A stochastic frontier model was used to estimate cost inefficiency and scale and scope economies. The results suggest that there is a wide range of inefficiency levels across countries. Very small and very large banks are significantly more inefficient than large banks. Underperforming banks tend to be smaller, to be undercapitalized, to present a poor profit performance, to be more dependent on non-interest income, to be more risky, to have a less stable deposit base and to intermediate less.
Title The Case for REITs in the Mixed-Asset Portfolio in the Short and Long Run
Author Lee, Stephen; Stevenson, Simon
Source Journal of Real Estate Portfolio Management, vol. 11, no. 1, Jan.-April 2005, pp. 55-80
ISSN 1083-5547
Abstract The poor performance of the Stock Market in the United States up to the middle of
2003 has meant that real estate investment trusts (REITs) are increasingly been seen as an attractive addition to the mixed-asset portfolio. However, there is little evidence to indicate the consistency of the role REITs should play in the mixed-asset portfolio over different investment horizons. This study's results highlight that REITs do play a significant role over both different time horizons and holding periods. The findings show that REITs attractiveness as a diversification asset increase as the holding period increases. In addition, their diversification qualities span the entire efficient frontier, providing return enhancement properties at the lower end of the frontier, switching to risk reduction qualities at the top end of the frontier.
Title Efficiency of Urban Public Transit: A Meta Analysis
Author Brons, Martijn; Nijkamp, Peter; Pels, Eric; Rietveld, Piet
Source Transportation, vol. 32, no. 1, January 2005, pp. 1-21
ISSN 0049-4488
Abstract The aim of this paper is twofold. First, to provide a statistical overview of the literature on public transit efficiency performance. Second, to statistically explain the variation in efficiency findings reported in the literature. To this end, first some key concepts of efficiency analysis will be introduced, while next the different frontier methodologies that are used in the literature will be discussed. The empirical part of this paper consists of a statistical summary of the literature as well as meta-regression analyses for different samples of the literature in order to identify key determinants of technical efficiency (TE) of public transit operators. For a broad sample of observations, we found significant and consistent effects of the type of database, region and output measurement method. For the sample of non-parametric studies we found that the type of frontier assumptions also have an impact on the efficiency ratio. Further results show that there is no statistical difference in TE ratio's between parametric and non-parametric studies. Finally, we found a positive univariate relationship between the number of inputs in the estimated specification and the efficiency ratio.

Title Modelling Entrepreneurship in Small-Scale Enterprises
Author Salim, Ruhul Amin
Source Applied Economics Letters, vol. 12, no. 1, January 2005, pp. 51-57
ISSN 1350-5851
Abstract In the small-scale enterprises, the entrepreneurs and managers are often one and the same. This paper attempts to estimate the entrepreneurial competence in small-scale enterprises decomposing into entrepreneurial ability and managerial efficiency using the frontier production function. The empirical results show that most of the sample enterprises fail to realize their full entrepreneurial potential. The important implication of these results is that small enterprises should generate a different set of rules than large enterprises in the decision-making process that best conduces them to move toward their potential frontier.
Title A Comparative Analysis of Productivity Growth, Catch-Up, and Convergence in
Transition Economies
Author Deliktas, Ertugrul; Balcilar, Mehmet
Source Emerging Markets Finance and Trade, vol. 41, no. 1, Jan.-Feb. 2005, pp. 6-28
ISSN 1540-496X
Abstract The paper examines the macroeconomic performance of 25 transition economies using a comparable data set. In order to see whether transition to a market-based economy increased economic efficiency, technical progress, and total factor productivity (TFP), we estimate efficiency measures for Eastern European and Baltic countries and the republics of the former
Soviet Union using stochastic frontier analysis (SFA) and data envelopment analysis as a confirmatory analysis. According to the SFA estimates, the average annual efficiency level for the
25 transition economies is 0.548, and the average annual rate of growth in technical efficiency is
1.8 percent for the 1991-2000 period. The average annual technical change in transition economies is -4.3 percent for the period examined. That is, there is no technological progress, but over the period there has been a technological regress. The sum of the rate of change in technical efficiency and technical change implies a 2.5 percent decline in the average annual TFP. These results suggest that, on average, change in technical efficiency is outweighed by the technical regress.
Title Electricity Distribution in the UK and Japan: A Comparative Efficiency Analysis
1985-1998
Author Hattori, Toru; Jamasb, Tooraj; Pollitt, Michael
Source Energy Journal, vol. 26, no. 2, 2005, pp. 23-47
ISSN 0195-6574
Abstract This paper examines the relative performance of electricity distribution systems in the
UK and Japan between 1985 and 1998 using cost-based benchmarking with data envelopment analysis (DEA) and stochastic frontier analysis (SFA) methods. The results suggest that the productivity gain in the UK electricity distribution has been larger than in the Japanese sector. In particular, productivity growth accelerated during the last years when the UK utilities were operating under tightened revenue caps. It also suggests that efficiency scores are higher for UK utilities. The findings also highlight the advantages of using multiple techniques in comparative analysis and in incentive regulation.

Title Source of Technical Efficiency among Small Holder Maize and Peanut Farmers in the Slash and Burn Agriculture Zone of Cameroon
Author Nyemeck Binam, Joachim; Tonye, Jean; Wandji, Njankoua
Source Journal of Economic Cooperation among Islamic Countries, vol. 26, no. 1, January
2005, pp. 193-210
ISSN 0252-953X
Abstract Measures of technical efficiency were conducted with 450 farmers in the slash and burn zone in Cameroon. Stochastic production frontier functions were used to compute farm-level technical efficiency (TE). The analysis reveals that the average level of technical efficiency equals to 78%, 80% and 77%, respectively, for the groundnut monocrop, maize monocrop and maize/groundnut intercrop systems. It also appears that the TE are invariant across cropping practices. The results suggest that substantial gains in output and/or in cost decrease can be attained by improving present technical practices. In a second step analysis a two-limit Tobit regression technique was used to examine the relationship between TE and various farm/farmer characteristics. The results show that schooling and membership to farmer's club or association are variables most promising for action. The analysis suggests that policymakers should foster the development of the formal farm's club or association by building the capacity of the farmers on creation and management skills. The analysis also support that the public sector involvement in the provision of information and technical assistance to farmers as a means to improve technical efficiency levels and household income is necessary.
Title The Econometrics of Efficient Portfolios
Author Gourieroux, C; Monfort, A
Source Journal of Empirical Finance, vol. 12, no. 1, January 2005, pp. 1-41
ISSN 0927-5398
Abstract It is well known that the standard mean variance approach can be inappropriate when return distributions feature skewness, fat tails or multimodes. This is typically the situation for portfolios including derivatives. In this case, it can be necessary to come back to the basic expected utility approach. In this paper, an efficient portfolio maximizes the expected utility of future wealth. This paper presents an analysis of the efficiency frontier, formed by a set of efficient portfolios corresponding to a parameterized class of utility functions. First, we discuss the estimation of an efficient portfolio and introduce several tests of the efficiency hypothesis, depending on what is known about the utility function and the budget level. Next we analyse the shape of the frontier and develop a procedure for testing the separability of the efficiency frontier into K independent funds. The inference is semi-nonparametric because the return distribution is left unspecified. We illustrate our approach by an application to portfolios including derivatives.
Title Modeling the Impact of Technical Change on Emissions Abatement Investments in
Developing Countries
Author Gallaher, Michael; Delhotal, K Casey
Source Journal of Technology Transfer, vol. 30, no. 1-2, January 2005, pp. 211-25
ISSN 0892-9912
Abstract The cost of greenhouse gas (GHG) mitigation over time depends on both the rate of

technical change in leading-edge technologies and the diffusion of knowledge and capabilities throughout international markets. This paper presents a framework developed by the U.S.
Environmental Protection Agency (EPA) and RTI International (RTI) for incorporating technical change in non-CO2 GHG mitigation projections over time. An engineering (bottom-up) approach is used to model technical change as a set of price and productivity factors that change over time as a function of technology advances and the location of developing countries relative to the technology efficiency frontier. S-shaped diffusion curves are generated, which demonstrate the maturity of the market for a given technology in a given region. The framework is demonstrated for coal mine methane mitigation technologies in the United States and China, but it is applicable for the full range of technology adoption issues.
Title Measuring the Efficiency of Public Services: The Limits of Analysis
Author Smith, Peter C; Street, Andrew
Source Journal of the Royal Statistical Society: Series A (Statistics in Society), vol. 168, no. 2,
2005, pp. 401-17
ISSN 0964-1998
Abstract Policy makers are increasingly seeking to develop overall measures of the efficiency of public service organizations. For that, the use of "off-the-shelf" statistical tools such as data envelopment analysis and stochastic frontier analysis have been advocated as tools to measure organizational efficiency. The analytical sophistication of such methods has reached an advanced stage of development. We discuss the context within which such models are deployed, their underlying assumptions and their usefulness for a regulator of public services. Four specific model building issues are discussed: the weights that are attached to public service outputs; the specification of the statistical model; the treatment of environmental influences on performance; the treatment of dynamic effects. The paper concludes with recommendations for policy makers and researchers on the development and use of efficiency measurement techniques.
Title Economies of Scale and Cost Efficiencies: A Panel-Data Stochastic-Frontier Analysis of Real Estate Investment Trusts
Author Miller, Stephen M; Clauretie, Terrence M; Springer, Thomas M
Source University of Connecticut, Department of Economics, Working papers: 2005-21, 2005,
22 pages pp.
Abstract This paper extends the existing research on real estate investment trust (REIT) operating efficiencies. We estimate a stochastic-frontier panel-data model specifying a translog cost function, covering 1995 to 2003. The results disagree with previous research in that we find little evidence of scale economies and some evidence of scale diseconomies. Moreover, we also generally find smaller inefficiencies than those shown by other REIT studies. Contrary to previous research, the results also show that self-management of a REIT associates with more inefficiency when we measure output with assets. When we use revenue to measure output, selfmanagement associates with less inefficiency. Also contrary with previous research, higher leverage associates with more efficiency
Title Real Estate and Economies of Scale: The Case of REITs
Author Ambrose, Brent W; Highfield, Michael J; Linneman, Peter D

Source Real Estate Economics, vol. 33, no. 2, Summer 2005, pp. 323-50
ISSN 1080-8620
Abstract Building on past research in the economies-of-scale debate, we test for scale economies in real estate investment trusts (REITs) by examining growth prospects, revenue and expense measures, profitability ratios, systematic risk and capital costs. Overall, we find that large
REITs are increasing growth prospects while succeeding at lowering costs, leading to a direct relationship between firm profitability and firm size. Additionally, we find an inverse relationship between equity betas and firm size, and for all cost of capital measures we find significant scale economies. Further evidence from the stochastic frontier analysis suggests efficiency opportunities appear possible through continued growth and consolidation in REITs.