Handling losses in translog profit models

In this article, we compare standard approaches used to handle losses in logarithmic profit models with a simple novel approach. We estimate translog stochastic profit frontiers, and discuss discriminatory power, rank stability and the precision of Profit Efficiency (PE) scores. Contrary to existing...

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Bibliographic Details
Published in:Applied economics 2011-02, Vol.43 (3), p.307-312
Main Authors: Bos, J. W. B., Koetter, M.
Format: Article
Language:English
Subjects:
Comparative analysis
Economic efficiency
Economic losses
Economic models
Estimating techniques
Measurement
Modelling
Profit calculations
Stochastic models
Stochastic processes
Studies
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Summary:In this article, we compare standard approaches used to handle losses in logarithmic profit models with a simple novel approach. We estimate translog stochastic profit frontiers, and discuss discriminatory power, rank stability and the precision of Profit Efficiency (PE) scores. Contrary to existing methods, our approach does not result in a loss of observations. Our new method enhances rank stability and discriminatory power, and improves the precision of PE scores.
ISSN:0003-6846
1466-4283
DOI:10.1080/00036840802570413