SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

Abstract: This paper proposes an approach to specify and estimate multiple input, multiple output production frontiers and technical efficiency using a stochastic ray frontier production model A possible model extension is to incorporate a technical efficiency effects model to allow estimation of the effects of various explanatory variables on technical efficiency. An empirical application using Swedish health care data reveals a significant positive effect on technical efficiency of an "internal market" reform while the effect on the production frontier is negative. Technical change is found to be positive while technical efficiency has decreased over time.

Keywords: Composed error model; distance function; panel data; stochastic ray frontier model; technical change; technical efficiency

JEL-codes: C12; C13; C21; C23; D24

15 pages, February 1997

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