Frontier Models and Efficiency

Measurement
Lab Session 4: Panel Data

0 Introduction
William Greene
1 Efficiency Measurement
2 Frontier Functions
Stern School of Business
3 Stochastic Frontiers
4 Production and Cost New York University
5 Heterogeneity
6 Model Extensions
7 Panel Data
8 Applications
Group Size Variables for
Unbalanced Panels
Farm Milk Cows FarmPrds
1 23.3 10.7 3
1 23.3 10.6 3
1 25 9.4 3
2 19.6 11 2
2 22.2 11 2
3 24.7 11 4
3 25.4 12 4
3 25.3 13.5 4
3 26.1 14.5 4
4 55.4 22 2
4 63.5 22 2
Creating a Group Size Variable
Requires an ID variable (such as FARM)

(1) Set the full sample exactly as desired

(2) SETPANEL ; Group = the id variable

; Pds = the name you want limdep to
use for the periods variable $

SETPANEL ; Group = farm ; pds = ti $

Application to Spanish Dairy Farms
N = 247 farms, T = 6 years (1993-1998)

Input Units Mean Std. Minimum Maximum

Dev.
Milk Milk production (liters) 131,108 92,539 14,110 727,281

Cows # of milking cows 2.12 11.27 4.5 82.3

Labor # man-equivalent units 1.67 0.55 1.0 4.0

Land Hectares of land 12.99 6.17 2.0 45.1

devoted to pasture and
crops.
Feed Total amount of 57,941 47,981 3,924.1 376,732
feedstuffs fed to dairy 4
cows (tons)
Exploring a Panel Data Set: Dairy

REGRESS ; Lhs = YIT

; RHS = COBBDGLS
; PANEL $

REGRESS ; Lhs = YIT

; RHS = COBBDGLS
; PANEL
; Het = Group $
Initiating a Panel Data Model
Nonlinear Panel Data Models
MODEL NAME ; Lhs =
; RHS =
; Panel
; any other model parts $

ALL PANEL DATA MODEL COMMANDS

ARE THE SAME
Panel Data Frontier Model Commands

FRONTIER ; LHS = [ ; COST ]

; RHS =
[; TECHEFF = ]
; Panel
; ... the rest of the model
; any other options $
 Pitt and Lee Random Effects

FRONTIER ; LHS = [ ; COST ]

; RHS =
[; EFF = ]
; Panel
; any other options $

This is the default panel model.

Pitt and Lee Model
Pitt and Lee Random Effects with Heteroscedasticity
and Time Invariant Inefficiency

FRONTIER ; LHS = [ ; COST ]

; RHS =
[; EFF = ]
; Panel
; HET ; HFU =
; HFV = $
 Pitt and Lee Random Effects
with Heteroscedasticity and Truncation
Time Invariant Inefficiency

FRONTIER ; LHS = [ ; COST ]

; RHS =
[; EFF = ]
; Panel
; HET ; HFU =
; HFV =
; MODEL = T
; RH2 = One, $
 Pitt and Lee Random Effects
with Heteroscedasticity
Time Invariant Inefficiency

FRONTIER ; LHS = [ ; COST ]

; RHS =
[; EFF = ]
; Panel
; HET ; HFU =
; HFV = $
 Schmidt and Sickles Fixed Effects

REGRESS ; LHS = ; RHS =

; PANEL
; PAR ; FIXED $
CREATE ; AI = ALPHAFE ( id ) $
CALC ; MAXAI = Max(AI) $
CREATE ; UI = MAXAI AI $

(Use Minimum and AI MINAI for cost)

 True Random Effects
Time Varying Inefficiency

FRONTIER ; LHS = [ ; COST ] ; RHS = $

FRONTIER ; LHS = [ ; COST ] ; RHS =
; Panel ; Halton (a good idea)
; PTS = number for the simulations
; RPM ; FCN = ONE (n)
; EFF = $

Note, first and second FRONTIER commands are

identical. This sets up the starting values.
 True Fixed Effects
Time Varying Inefficiency
FRONTIER ; LHS = [ ; COST ] ; RHS = $
FRONTIER ; LHS = [ ; COST ] ; RHS =
; Panel
; FEM
; EFF = $

Note, first and second FRONTIER commands are

identical. This sets up the starting values.
 Battese and Coelli
Time Varying Inefficiency

FRONTIER ; LHS = [ ; COST ] ; RHS =

; Panel
; MODEL = BC
; EFF = $
This is the default specification,
u(i,t) = exp[h(t-T)] |U(i)|
To use the extended specification,
u(i,t)=exp[dz(i)] |U(i)|
; Het
; HFU = variables
 Other Models

There are many other panel models

with time varying and time
invariant inefficiency,
heteroscedasticity, heterogeneity,
etc.
Latent class,
Random parameters
Sample selection,
And so on.
 Frontier Models and Efficiency
Measurement
Lab Session 4: Model Building

0 Introduction
William Greene
1 Efficiency Measurement
2 Frontier Functions
Stern School of Business
3 Stochastic Frontiers
4 Production and Cost New York University
5 Heterogeneity
6 Model Extensions
7 Panel Data
8 Applications
Modeling Assignment