Abstract
The empirical literature on production and cost functions is divided into two strands. The neoclassical approach concentrates on model parameters, while the frontier approach decomposes the disturbance term to a symmetric noise term and a positively skewed inefficiency term. We propose a theoretical justification for the skewness of the inefficiency term, arguing that this skewness is the key testable hypothesis of the frontier approach. We propose to test the regression residuals for skewness in order to distinguish the two competing approaches. Our test builds directly upon the asymmetry of regression residuals and does not require any prior distributional assumptions.
| Original language | English |
|---|---|
| Journal | Scandinavian Journal of Economics |
| Volume | 111 |
| Issue number | 2 |
| Pages (from-to) | 351-367 |
| Number of pages | 17 |
| ISSN | 0347-0520 |
| DOIs | |
| Publication status | Published - 2009 |
Keywords
- Firms and production
- Frontier estimation
- Hypothesis testing
- Production function
- Productive efficiency analysis