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Department of Economics, WU (Wirtschaftsuniversität Wien) Working papers, Department of Economics, WU (Wirtschaftsuniversität Wien)

No 39:
A new approach to stochastic frontier estimation: DEA+

Dieter Gstach ()

Abstract: The outcome of a production process might not only deviate from a theoretical maximum due to inefficiency, but also because of non-controllable influences. This raises the issue of reliability of Data Envelopment Analysis in noisy environments. I propose to assume an i.i.d. data generating process with bounded noise component, so that the following approach is feasible: Use DEA to estimate a pseudo frontier first (nonparametric shape estimation). Next apply a ML- technique to the DEA-estimated efficiencies, to estimate the scalar value by which this pseudo-frontier must be shifted downward to get the true production frontier (location estimation). I prove, that this approach yields consistent estimates of the true frontier.

Keywords: Stochastic DEA; Consistency; Semi-Parametric Frontier Estimation; MLE; (follow links to similar papers)

JEL-Codes: C14; C24; D24; (follow links to similar papers)

June 1996

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