Efficiency measurement in the stochastic frontier model

Jan Ondrich, John Ruggiero

Research output: Contribution to journalArticlepeer-review

100 Scopus citations


Deterministic models of technical efficiency assume that all deviations from the production frontier are due to inefficiency. Critics argue that no allowance is made for measurement error and other statistical noise so that the resulting efficiency measure will be contaminated. The stochastic frontier model is an alternative that allows both inefficiency and measurement error. Advocates argue that the stochastic frontier models should be used despite other potential limitations because of the superior conceptual treatment of noise. As will be demonstrated in this paper, however, the assumed shape of the error distributions is used to identify a key production function parameter. Therefore, the stochastic frontier models, like the deterministic models, cannot produce absolute measures of efficiency. Moreover, we show that rankings for firm-specific inefficiency estimates produced by traditional stochastic frontier models do not change from the rankings of the composed errors. As a result, the performance of the deterministic models is qualitatively similar to that of the stochastic frontier models.

Original languageEnglish (US)
Pages (from-to)434-442
Number of pages9
JournalEuropean Journal of Operational Research
Issue number2
StatePublished - Mar 1 2001

ASJC Scopus subject areas

  • General Computer Science
  • Modeling and Simulation
  • Management Science and Operations Research
  • Information Systems and Management


Dive into the research topics of 'Efficiency measurement in the stochastic frontier model'. Together they form a unique fingerprint.

Cite this