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Handling losses in translog profit models

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Abstract:

In this article, we compare standard approaches used to handle losses in logarithmic profit models with a simple novel approach. We estimate translog stochastic profit frontiers, and discuss discriminatory power, rank stability and the precision of Profit Efficiency (PE) scores. Contrary to existing methods, our approach does not result in a loss of observations. Our new method enhances rank stability and discriminatory power, and improves the precision of PE scores.

Document Type: Research Article

DOI: https://doi.org/10.1080/00036840802570413

Affiliations: 1: Utrecht School of Economics, Utrecht University, Utrecht, The Netherlands 2: Faculty of Economics, University of Groningen, 9700 AV Groningen, The Netherlands

Publication date: 2011-02-01

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