A Laplace stochastic frontier model

William C. Horrace, Christopher F. Parmeter

Research output: Contribution to journalArticle

8 Scopus citations

Abstract

We propose a Laplace stochastic frontier model as an alternative to the traditional model with normal errors. An interesting feature of the Laplace model is that the distribution of inefficiency conditional on the composed error is constant for positive values of the composed error, but varies for negative values. A simulation study suggests that the model performs well relative to the normal-exponential model when the two-sided error is misspecified. An application to U.S. Airlines is provided.

Original languageEnglish (US)
Pages (from-to)260-280
Number of pages21
JournalEconometric Reviews
Volume37
Issue number3
DOIs
StatePublished - Mar 16 2018

Keywords

  • Efficiency estimation
  • Laplace distribution
  • median
  • stochastic frontier
  • truncated Laplace distribution
  • wrong skew

ASJC Scopus subject areas

  • Economics and Econometrics

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