Stochastic Efficiency Measurement: The Curse of Theoretical Consistency

Journal of Applied Economics, Vol. 9, No. 1, pp. 139-165, May 2006

Posted: 16 Jun 2006

See all articles by Johannes Sauer

Johannes Sauer

University of Bonn - Center for Development Research (ZEF)

Klaus Frohberg

University of Bonn - Center for Development Research (ZEF)

Heinrich Hockmann

Leibniz Institute of Agricultural Development in Transition Economies (IAMO)

Abstract

The availability of efficiency estimation software - freely distributed via the internet and relatively easy to use - recently inflated the number of corresponding applications. The resulting efficiency estimates are used without a critical assessment with respect to the literature on theoretical consistency, flexibility and the choice of the appropriate functional form. The robustness of policy suggestions based on inferences from efficiency measures nevertheless crucially depends on theoretically well-founded estimates. This paper adresses stochastic efficiency measurement by critically reviewing the theoretical consistency of recently published technical efficiency estimates. The results confirm the need for a posteriori checking the regularity of the estimated frontier by the researcher and, if necessary, the a priori imposition of the theoretical requirements.

Keywords: functional form, stochastic efficiency analysis, theoretical consistency

JEL Classification: C51, D24, Q12

Suggested Citation

Sauer, Johannes and Frohberg, Klaus and Hockmann, Heinrich, Stochastic Efficiency Measurement: The Curse of Theoretical Consistency. Journal of Applied Economics, Vol. 9, No. 1, pp. 139-165, May 2006, Available at SSRN: https://ssrn.com/abstract=908886

Johannes Sauer (Contact Author)

University of Bonn - Center for Development Research (ZEF) ( email )

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

Klaus Frohberg

University of Bonn - Center for Development Research (ZEF)

Walter-Flex-Str. 3
Bonn, NRW 53113
Germany

Heinrich Hockmann

Leibniz Institute of Agricultural Development in Transition Economies (IAMO) ( email )

Theodor-Lieser-Str.2
Halle, 06120
Germany

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