Modeling Technical Efficiency using Truncated Skewed Laplace Distribution
The stochastic frontier analysis has been widely used to estimate technical efficiency of firms. The basic idea lies in the introduction of a composed error term consisting of a noise V and an inefficiency term U. From there, technical efficiency of each firm is estimated by utilizing distributional assumptions on the two error components. In the literature, V is usually assumed to be normally distributed and the distribution of U can be exponential, truncated normal or Gamma. In this paper, we consider Truncated Skewed Laplace (TSL) distribution for technical inefficiency term U. This model is a generalized model for the exponential distribution, which allows better coverage range for skewness and kurtosis coefficients. An application of the model is conducted for a data set of 100 tourism companies in Vietnam. For the same data set, Normal-Exponential model is also applied for the comparison purpose.
Technical Efficiency, Stochastic Frontier Analysis, Estimation, Maximum Likelihood Method, Cross-sectional Data.
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