A time-varying true individual effects model with endogenous regressors

A time-varying true individual effects model with endogenous regressors

We propose a fairly general individual effects stochastic frontier model, which allows both heterogeneity and inefficiency to change over time. Moreover, our model handles the endogeneity problems if either at least one of the regressors or one-sided error term is correlated with the two-sided error...

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Bibliographic Details
Main Authors: Kutlu, L. (Author), Tran, K.C (Author), Tsionas, M.G (Author)
Format: Article
Language:English
Published: Elsevier Ltd 2019
Subjects:
Endogeneity
Fixed effects
Panel data
Stochastic frontier
Stochastic models
Stochastic systems
Time varying
Time-varying heterogeneity
True fixed effects
Online Access:View Fulltext in Publisher
Description
Summary:We propose a fairly general individual effects stochastic frontier model, which allows both heterogeneity and inefficiency to change over time. Moreover, our model handles the endogeneity problems if either at least one of the regressors or one-sided error term is correlated with the two-sided error term. Our Monte Carlo experiments show that our estimator performs well. We employed our methodology to the US banking data and found a negative relationship between return on revenue and cost efficiency. Estimators ignoring time-varying heterogeneity or endogeneity did not perform well and gave very different estimates compared to our estimator. © 2019 Elsevier B.V.
ISBN:03044076 (ISSN)
DOI:10.1016/j.jeconom.2019.01.014

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