Estimation of Stochastic Frontier Models with Fixed Effects through Monte Carlo Maximum Likelihood
Estimation of nonlinear fixed-effects models is plagued by the incidental parameters problem. This paper proposes a procedure for choosing appropriate densities for integrating the incidental parameters from the likelihood function in a general context. The densities are based on priors that are upd...
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| Format: | Article |
| Language: | English |
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Wiley
2011-01-01
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| Series: | Journal of Probability and Statistics |
| Online Access: | http://dx.doi.org/10.1155/2011/568457 |
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| _version_ | 1850174021452169216 |
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| author | Grigorios Emvalomatis Spiro E. Stefanou Alfons Oude Lansink |
| author_facet | Grigorios Emvalomatis Spiro E. Stefanou Alfons Oude Lansink |
| author_sort | Grigorios Emvalomatis |
| collection | DOAJ |
| description | Estimation of nonlinear fixed-effects models is plagued by the incidental parameters problem. This paper proposes a procedure for choosing appropriate densities for integrating the incidental parameters from the likelihood function in a general context. The densities are based on priors that are updated using information from the data and are robust to possible correlation of the group-specific constant terms with the explanatory variables. Monte Carlo experiments are performed in the specific context of stochastic frontier models to examine and compare the sampling properties of the proposed estimator with those of the random-effects and correlated random-effects estimators. The results suggest that the estimator is unbiased even in short panels. An application to a cross-country panel of EU manufacturing industries is presented as well. The proposed estimator produces a distribution of efficiency scores suggesting that these industries are highly efficient, while the other estimators suggest much poorer performance. |
| format | Article |
| id | doaj-art-c6d6aef12da04e389053835cef4eb673 |
| institution | OA Journals |
| issn | 1687-952X 1687-9538 |
| language | English |
| publishDate | 2011-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Journal of Probability and Statistics |
| spelling | doaj-art-c6d6aef12da04e389053835cef4eb6732025-08-20T02:19:44ZengWileyJournal of Probability and Statistics1687-952X1687-95382011-01-01201110.1155/2011/568457568457Estimation of Stochastic Frontier Models with Fixed Effects through Monte Carlo Maximum LikelihoodGrigorios Emvalomatis0Spiro E. Stefanou1Alfons Oude Lansink2Business Economics Group, Wageningen University, 6707 KN Wageningen, The NetherlandsBusiness Economics Group, Wageningen University, 6707 KN Wageningen, The NetherlandsBusiness Economics Group, Wageningen University, 6707 KN Wageningen, The NetherlandsEstimation of nonlinear fixed-effects models is plagued by the incidental parameters problem. This paper proposes a procedure for choosing appropriate densities for integrating the incidental parameters from the likelihood function in a general context. The densities are based on priors that are updated using information from the data and are robust to possible correlation of the group-specific constant terms with the explanatory variables. Monte Carlo experiments are performed in the specific context of stochastic frontier models to examine and compare the sampling properties of the proposed estimator with those of the random-effects and correlated random-effects estimators. The results suggest that the estimator is unbiased even in short panels. An application to a cross-country panel of EU manufacturing industries is presented as well. The proposed estimator produces a distribution of efficiency scores suggesting that these industries are highly efficient, while the other estimators suggest much poorer performance.http://dx.doi.org/10.1155/2011/568457 |
| spellingShingle | Grigorios Emvalomatis Spiro E. Stefanou Alfons Oude Lansink Estimation of Stochastic Frontier Models with Fixed Effects through Monte Carlo Maximum Likelihood Journal of Probability and Statistics |
| title | Estimation of Stochastic Frontier Models with Fixed Effects through Monte Carlo Maximum Likelihood |
| title_full | Estimation of Stochastic Frontier Models with Fixed Effects through Monte Carlo Maximum Likelihood |
| title_fullStr | Estimation of Stochastic Frontier Models with Fixed Effects through Monte Carlo Maximum Likelihood |
| title_full_unstemmed | Estimation of Stochastic Frontier Models with Fixed Effects through Monte Carlo Maximum Likelihood |
| title_short | Estimation of Stochastic Frontier Models with Fixed Effects through Monte Carlo Maximum Likelihood |
| title_sort | estimation of stochastic frontier models with fixed effects through monte carlo maximum likelihood |
| url | http://dx.doi.org/10.1155/2011/568457 |
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