This course presented the methodology of econometric estimation of economic efficiency. It examined the stochastic frontier model as an econometric extension of the classical microeconomic theory of production and cost at the individual producer level. Basic models for production, cost and ‘distance’ were examined. Also examined were major extensions of the models to provide scope for cross firm heterogeneity (such as heteroscedasticity) as well as unobserved heterogeneity captured by the stochastic specification of the model. The second day of the course turned to more advanced applications, such as Bayesian and classical methods of estimation and, especially, panel data models. In addition to the examination of theoretical and econometric methods, several applications from the recent literature were studied.
The course included lectures that develop the relevant theory and extensive practical, laboratory applications. Emphasis in the laboratory sessions was on estimation of stochastic frontier models and using them to compute measures of economic efficiency. We applied these techniques using the LIMDEP computer program and several ‘real’ data sets that have been used in applications already in the literature.
Prior knowledge was assumed to include a course in microeconomics, calculus at the level assumed in the first year of a Ph.D. program in economics and a course in econometrics at the beginning Ph.D. level out of a textbook such as Greene, W., Econometric Analysis, 5th edition.