This paper proposes a semiparametric smooth-coefficient (SPSC) stochastic production frontier model where regression coefficients are unknown smooth functions of environmental factors (ZZ). Technical inefficiency is specified in the form of a parametric scaling function which also depends on the ZZ variables. Thus, in our SPSC model the ZZ variables affect productivity directly via the technology parameters as well as through inefficiency. A residual-based bootstrap test of the relevance of the environmental factors in the SPSC model is suggested. An empirical application is also used to illustrate the technique.
Bibliographical noteNOTICE: this is the author’s version of a work that was accepted for publication in Economics letters. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Sun, K & Kumbhakar, SC, 'Semiparametric smooth-coefficient stochastic frontier model' Economics letters, vol. 120, no. 2 (2013) DOI http://dx.doi.org/10.1016/j.econlet.2013.05.001
- semiparametric smooth-coefficient model
- stochastic frontier
- environmental factors