Some models for stochastic frontiers with endogeneity

Abstract

We consider mostly Bayesian estimation of stochastic frontier models where one-sided inefficiencies and/or the idiosyncratic error term are correlated with the regressors. We begin with a model where a Chamberlain-Mundlak device is used to relate a transformation of time-invariant effects to the regressors. This basic model is then extended in two directions: first an extra one-sided error term is added to allow for time-varying efficiencies. Second, a model with an equation for instrumental variables and a more general error covariance structure is introduced to accommodate correlations between both error terms and the regressors. An application of the first and second models to Philippines..