Stochastic Frontier Analysis using Stata

Abstract

This article describes sfcross and sfpanel, two new Stata commands for the estimation of cross-sectional and panel-data stochastic frontier models. sfcross extends the capabilities of the frontier command by including additional models (Greene, 2003, Journal of Productivity Analysis 19: 179–190; Wang, 2002, Journal of Productivity Analysis 18: 241–253) and command functionalities, such as the possibility of managing complex survey data characteristics. Similarly, sfpanel allows one to fit a much wider range of time-varying inefficiency models compared with the xtfrontier command, including the model of Cornwell, Schmidt, and Sickles (1990, Journal of Econometrics 46: 185–200); the model of Lee and Schmidt (1993, in The Measurement of Productive Efficiency: Techniques and Applications), a production frontier model with flexible temporal variation in technical efficiency; the flexible model of Kumbhakar (1990, Journal of Econometrics 46: 201–211); the inefficiency effects model of Battese and Coelli (1995 Empirical Economics 20: 325–332); and the “true” fixed- and random-effects models of Greene (2005a, Journal of Econometrics 126: 269–303). A brief overview of the stochastic frontier literature, a description of the two commands and their options, and examples using simulated and real data are provided.