Modelling a stochastic profit system using gauge function

This article provides an analytical solution to the 'Greene problem'; use of McFadden's gauge function successfully separates technical inefficiency from the profit function and its share equations, even though allocative inefficiency is incorporated into the profit system, and establ...

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Bibliographic Details
Published in:Applied economics letters 2012-06, Vol.19 (9), p.823-827
Main Author: Han, Yongseung
Format: Article
Language:English
Subjects:
Allocative efficiency
Economic analysis
Economic models
Estimation
gauge function
Mathematical functions
Mathematical problems
Modelling
Profit calculations
profit efficiency
Profits
Stochastic models
Stochastic processes
stochastic profit system
Studies
Technical efficiency
technical inefficiency
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Summary:This article provides an analytical solution to the 'Greene problem'; use of McFadden's gauge function successfully separates technical inefficiency from the profit function and its share equations, even though allocative inefficiency is incorporated into the profit system, and establishes an exact relationship between allocative inefficiency in the profit function and its share equations to make the system readily estimable.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2011.605754