A Bayesian Approach To Imposing Curvature On Distance Functions

O'Donnell, Chris and Coelli, Tim J. (2003) A Bayesian Approach To Imposing Curvature On Distance Functions. Working Paper No. 03/2003, Centre for Efficiency and Productivity Analysis, School of Economics, The University of Queensland.

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Author O'Donnell, Chris
Coelli, Tim J.
Title A Bayesian Approach To Imposing Curvature On Distance Functions
School, Department or Centre Centre for Efficiency and Productivity Analysis, School of Economics
Institution The University of Queensland
Open Access Status Other
Report Number Working Paper No. 03/2003
Publication date 2003-08-01
Total pages 29
Publisher The University of Queensland School of Economics
Language eng
Subject 340401 Economic Models and Forecasting
Abstract/Summary The estimated parameters of output distance functions frequently violate the monotonicity, quasiconvexity and convexity constraints implied by economic theory, leading to estimated elasticities and shadow prices that are incorrectly signed, and ultimately to perverse conclusions concerning the effects of input and output changes on productivity growth and relative efficiency levels. We show how a Bayesian approach can be used to impose these constraints on the parameters of a translog output distance function. Implementing the approach involves the use of a Gibbs sampler with data augmentation. A Metropolis-Hastings algorithm is also used within the Gibbs to simulate observations from truncated pdfs. Our methods are developed for the case where panel data is available and technical inefficiency effects are assumed to be time-invariant. Two models - a fixed effects model and a random effects model - are developed and applied to panel data on 17 European railways. We observe significant changes in estimated elasticities and shadow price ratios when regularity restrictions are imposed.
Keyword Markov chain
Monte Carlo
Inequality constraints
Output Distance Function
European railways

Document type: Department Technical Report
Collections: Working Papers (School of Economics)
School of Economics Publications
 
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Created: Wed, 07 Apr 2004, 10:00:00 EST