A.F. de Vos
- An efficiency correction model
- Number of pages
- Amsterdam: University of Amsterdam Business School, Faculty of Economics and Business
- Document type
- Working paper
- Faculty of Economics and Business (FEB)
- Amsterdam Business School Research Institute (ABS-RI)
We analyze a dataset containing costs and outputs of 67 American local exchange carriers in a period of 11 years. This data has been used to judge the efficiency of BT and KPN using static stochastic frontier models. We show that these models are dynamically misspecified. As an alternative we provide an efficiency correction model. This model makes it possible to distinguish between unmeasured firm heterogeneity, firm inefficiency and measurement error, by assuming time invariant unmeasured firm heterogeneity and firm efficiency evolving over time.
Keywords: Error Correction; Panel Data; Stochastic Frontier
JEL Classification: C23, D2
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