Misspecification Preferred: The Sensitivity of Inefficiency Rankings

Author: Jensen, Uwe

Source: Journal of Productivity Analysis, Volume 23, Number 2, May 2005 , pp. 223-244(22)

Publisher: Springer

Buy & download fulltext article:

Price: $47.00 plus tax (Refund Policy)

Abstract:

Ruggiero (European Journal of Operational Research 115, 555–563. 1999) compared the two popular parametric frontier methods for cross-sectional data—the stochastic frontier and the corrected OLS—in a simulation study. He demonstrated that the inefficiency ranking accuracy of the established stochastic frontier is uniformly inferior to that of the misspecified Corrected OLS (COLS) (which lacks an error term). The reason for his result remains unclear, however. In this paper, a more extensive simulation study is therefore conducted to find out whether the superiority of COLS is simply due to small sample sizes or to poor performance of the inefficiency level estimator.

Keywords: inefficiency rankings; misspecification; parametric frontiers; sensitivity; simulation

Document Type: Research article

DOI: http://dx.doi.org/10.1007/s11123-005-1330-y

Affiliations: 1: Institut für Statistik und Ökonometrie, Christian-Albrechts-Universität, Olshausenstr, 40, 24118, Kiel, Germany, Email: Jensen@stat-econ.uni-kiel.de

Publication date: 2005-05-01