Formulation and estimation of stochastic frontier production function models

D Aigner, CAK Lovell, P Schmidt - Journal of econometrics, 1977 - Elsevier
Journal of econometrics, 1977Elsevier
Previous studies of the so-called frontier production function have not utilized an adequate
characterization of the disturbance term for such a model. In this paper we provide an
appropriate specification, by defining the disturbance term as the sum of symmetric normal
and (negative) half-normal random variables. Various aspects of maximum-likelihood
estimation for the coefficients of a production function with an additive disturbance term of
this sort are then considered.
Abstract
Previous studies of the so-called frontier production function have not utilized an adequate characterization of the disturbance term for such a model. In this paper we provide an appropriate specification, by defining the disturbance term as the sum of symmetric normal and (negative) half-normal random variables. Various aspects of maximum-likelihood estimation for the coefficients of a production function with an additive disturbance term of this sort are then considered.
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