Abstract
We consider a model that provides flexible parameterizations of the exogenous influences on inefficiency. In particular, we demonstrate the model's unique property of accommodating non-monotonic efficiency effect. With this non-monotonicity, production efficiency no longer increases or decreases monotonically with the exogenous influence; instead, the relationship can shifts within the sample. Our empirical example shows that variables can indeed have non-monotonic effects on efficiency. Furthermore, ignoring non-monotonicity is shown to yield an inferior estimation of the model, which sometimes results in opposite predictions concerning the data.
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Wang, HJ. Heteroscedasticity and Non-Monotonic Efficiency Effects of a Stochastic Frontier Model. Journal of Productivity Analysis 18, 241–253 (2002). https://doi.org/10.1023/A:1020638827640
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DOI: https://doi.org/10.1023/A:1020638827640