Publication: Stochastic Frontiers and Asymmetric Information Models
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2002
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Kluwer
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Abstract
This article is an attempt to shed light on the specification and identification of inefficiency in stochastic frontiers.We consider the case of a regulated firm or industry. Applying a simple principal-agent framework that accounts for informational asymmetries to this context, we derive the associated production and cost frontiers. Noticeably this approach yields a decomposition of inefficiency into two components: The first component is a pure random term while the second component depends on the unobservable actions taken by the agent (the firm). This result provides a theoretical foundation to the usual specification applied in the literature on stochastic frontiers. An application to a panel data set of French urban transport networks serves as an illustration.
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Cost and production stochastic frontiers, Asymmetric information, Technical inefficiency, Effort regulation, Test of especification, Urban transport
Bibliographic citation
Journal of Productivity Analysis. 2002, 18 (2), p. 145-159