A Bayesian approach to imposing curvature on distance functions

O'Donnell, Christopher J. and Coelli, Timothy J. (2005). A Bayesian approach to imposing curvature on distance functions. In: A. R. Gallant, J. F. Geweke and T. Amemiya, Journal of Econometrics: Current developments in productivity and efficiency measurement. Current Development in Productivity and Efficiency Measurement, Athens, U.S., (493-523). October, 2002. doi:10.1016/j.jeconom.2004.05.011

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Author O'Donnell, Christopher J.
Coelli, Timothy J.
Title of paper A Bayesian approach to imposing curvature on distance functions
Conference name Current Development in Productivity and Efficiency Measurement
Conference location Athens, U.S.
Conference dates October, 2002
Proceedings title Journal of Econometrics: Current developments in productivity and efficiency measurement   Check publisher's open access policy
Journal name Journal of Econometrics   Check publisher's open access policy
Place of Publication Amsterdam, The Netherlands
Publisher Elsevier
Publication Year 2005
Sub-type Fully published paper
DOI 10.1016/j.jeconom.2004.05.011
Open Access Status Not yet assessed
ISSN 0304-4076
Editor A. R. Gallant
J. F. Geweke
T. Amemiya
Volume 126
Issue 2
Start page 493
End page 523
Total pages 31
Language eng
Abstract/Summary The estimated parameters of output distance functions frequently violate the monotonicity, quasi-convexity 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. (c) 2004 Elsevier B.V. All rights reserved.
Subjects C1
340201 Agricultural Economics
340402 Econometric and Statistical Methods
720404 Productivity
1402 Applied Economics
Keyword Markov Chain Monte Carlo
Inequality Constraints
Output Distance Function
European Railways
Mathematics, Interdisciplinary Applications
Social Sciences, Mathematical Methods
Stochastic Frontier Models
Malmquist Productivity Index
Shadow Prices
Q-Index Code C1

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Created: Wed, 15 Aug 2007, 16:20:45 EST