Stochastic Frontier Analysis

This book develops econometric techniques for the estimation of production, cost and profit frontiers.

Subal C. Kumbhakar (Author), C. A. Knox Lovell (Author)

9780521666633, Cambridge University Press

Paperback, published 10 March 2003

344 pages
23.4 x 15.6 x 1.8 cm, 0.48 kg

'It is fascinating to see what has been accomplished in the field of stochastic frontier analysis since its beginning in 1977. The authors provide a luvidly written review of all the developments that have taken place in the past quarter of a century. Although hardly any publication has escaped their attention, Kumbhakar and Lovell succeed in keeping the reader focused on the grand lines of research. Well-rooted in recent history, this book will stimulate further research into measurement and explanation of efficiency and productivity (change). I expect this book to be at hand for a long time.' Bert M. Balk, Statistics Netherlands

Modern textbook presentations of production economics typically treat producers as successful optimizers. Conventional econometric practice has generally followed this paradigm, and least squares based regression techniques have been used to estimate production, cost, profit and other functions. In such a framework deviations from maximum output, from minimum cost and cost minimizing input demands, and from maximum profit and profit maximizing output supplies and input demands, are attributed exclusively to random statistical noise. However casual empiricism and the business press both make persuasive cases for the argument that, although producers may indeed attempt to optimize, they do not always succeed. This book develops econometric techniques for the estimation of production, cost and profit frontiers, and for the estimation of the technical and economic efficiency with which producers approach these frontiers. Since these frontiers envelop rather than intersect the data, and since the authors continue to maintain the traditional econometric belief in the presence of external forces contributing to random statistical noise, the work is titled Stochastic Frontier Analysis.

1. Introduction
2. Analytical foundations
3. The estimation of technical efficiency
4. The estimation and decomposition of cost efficiency
5. The estimation and decomposition of profit efficiency
6. The shadow price approach to the estimation and decomposition of economic efficiency
7. Incorporating exogenous influences on efficiency
8. The estimation of efficiency change and productivity change.

Subject Areas: Mathematical modelling [PBWH], Economic statistics [KCHS], Econometrics [KCH], Economics [KC]