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Estimation of a Doubly Heteroscedastic Stochastic Frontier Cost Function

Kaddour Hadri
Journal of Business & Economic Statistics
Vol. 17, No. 3 (Jul., 1999), pp. 359-363
DOI: 10.2307/1392293
Stable URL: http://www.jstor.org/stable/1392293
Page Count: 5
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Estimation of a Doubly Heteroscedastic Stochastic Frontier Cost Function
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Abstract

This article extends the results obtained by Caudill, Ford, and Gropper in estimating and testing stochastic frontier cost functions in the presence of heteroscedastic inefficiency using cross-section data. It suggests the estimation of the model under the assumption of heteroscedasticity in both random terms. This avoids any possible misspecification bias and the use of incorrect tests. The same data as used by Caudill et al. supports the new specification. Moreover, we find that firm-specific inefficiency measures are extremely sensitive to the proposed correction for heteroscedasticity.

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