[Limdep Nlogit List] FRONTIER command : Battese & Coelli 95 model

[Zhi Shen]

Dear Barry,

In Limdep, model=bc is the command for modeling Battese and Coelli (1992) time varying inefficiency model in which a monotonic time trend is specified to inefficiency term, written as u(i,t)=exp(eta(t-T))|U(i)|. If you want to use Battese and Coelli (1995) model to examine the impact of firm specific factors on mean of inefficiency instead, u have use model=t; rh2=one, time trend,... and other factors. I don't think the model command for Battese and Coelli (1992) model will recognize the command rh2=one, time trend, ..., at least not in my sample experience. You can have a try. 

To go further, if you also want to consider the possible impact of these firm specific factors in the variances of inefficiency (heteroscedasticity), you have to use Battese and Coelli (1995) model. The basic commands are 

frontier;(cost);lhs=dependent variables;rhs=independent variables;
    ;model=truncation;rh2=one,z variables             ? z variables in mean of uit
    ;het;hfu=one, z variables                        ? z variables in variance of inefficiency uit
    ;pds=_groupti;eff=uibc $

If you want to consider heteroscedasticity in random error term, you can add in commands
    ;hfv=z variables                               ? z variables in variance of random error vit

Hope it helps. Good luck!

Zhi Shen
Research student
Department of Economics
Loughborough University
LE11 3TU
UK

-----Original Message-----
From: limdep-bounces at limdep.itls.usyd.edu.au [mailto:limdep-bounces at limdep.itls.usyd.edu.au] On Behalf Of Barry Quinn
Sent: 02 October 2009 12:24
To: limdep at limdep.itls.usyd.edu.au
Subject: [Limdep Nlogit List] FRONTIER command : Battese & Coelli 95 model

Hi 

I am attempting to recreate the Battesse & Coelli 1995 model in which they model the Technical inefficiency using firm specific factors in a panel data setting.
To date i have only been using the Ceolli DOS program in which i have been including a time trend variable in the Technical inefficiency model to control for temporal effects.
In Limdep  i use the options 
pds=_groupsize ;model=bc ; Rh2= one, time trend ,......and other firm specific factors

But my concern is that in the manual the BC model seems to be the 1988 model specification which specifically accounts for time variation using the eta term 
Also the manual notes that " Battesse and Coelli (1995) ..not withstanding the assertion in the paper, the latter is not a panel data treatment as observations are still assumed to be independent".

Would this mean that i should not use the Model=BC option at all, but instead use model=T and Rh2= one, time trend, ......other firm specific factors, and control for the panel using firm dummies ?

My panel is has a large number of firms(480) over a short time period(6yrs) so i am concern this amount of dummies my cause estimation issues

any advice would be much appreciated

many thanks 

Barry Quinn

Queens University Belfast
_______________________________________________
Limdep site list
Limdep at limdep.itls.usyd.edu.au
http://limdep.itls.usyd.edu.au