A solution for multicollinearity in stochastic frontier production function models

This paper considers the problem of collinearity among inputs in a stochastic frontier production model, an issue that has received little attention in the econometric literature. To address this problem, a principal-component-based solution is proposed, which allows carrying out a joint interpretat...

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Bibliographic Details
Published in:	Lecturas de economía Vol. 86; no. 86; pp. 9 - 23
Main Author:	Castaño, Elkin
Format:	Journal Article
Language:	English
Published:	Medellín Universidad de Antioquia, Departamento de Economia 01-01-2017 Universidad de Antioquía Universidad de Antioquia
Subjects:	análisis de frontera estocástica Data envelopment analysis Econometrics ECONOMICS Efficiency eficiencia técnica estimación de componentes principales multicolinealidad multicollinearity principal component estimation productividad productivity stochastic frontier analysis Stochastic models technical efficiency analyse de frontière stochastique productivité productividad efficacité technique análisis de frontera estocástica stochastic frontier analysis estimación de componentes principales technical efficiency estimation des composants principaux multicollinearity productivity eficiencia técnica multicolinéarité principal component estimation multicolinealidad
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Summary:	This paper considers the problem of collinearity among inputs in a stochastic frontier production model, an issue that has received little attention in the econometric literature. To address this problem, a principal-component-based solution is proposed, which allows carrying out a joint interpretation of technical efficiency and the technology parameters of the model. Applications of the method to simulated and real data show its usability and effective performance.
ISSN:	0120-2596 2323-0622
DOI:	10.17533/udea.le.n86a01