Part 22: Stochastic Frontier [1/83] Econometric Analysis of Panel Data William Greene Department of Economics Stern School of Business.

Download Report

Transcript Part 22: Stochastic Frontier [1/83] Econometric Analysis of Panel Data William Greene Department of Economics Stern School of Business.

Part 22: Stochastic Frontier [1/83]
Econometric Analysis of Panel Data
William Greene
Department of Economics
Stern School of Business
Part 22: Stochastic Frontier [2/83]
22. Stochastic Frontier Models
And Efficiency Measurement
Part 22: Stochastic Frontier [3/83]
Applications









Banking
Accounting Firms, Insurance Firms
Health Care: Hospitals, Nursing Homes
Higher Education
Fishing
Sports: Hockey, Baseball
World Health Organization – World Health
Industries: Railroads, Farming,
Several hundred applications in print since 2000
Part 22: Stochastic Frontier [4/83]
Technical Efficiency
Part 22: Stochastic Frontier [5/83]
Technical Inefficiency
= Production parameters, “i” = firm i.
Part 22: Stochastic Frontier [6/83]
(Nonparametric) Data
Envelopment Analysis
Part 22: Stochastic Frontier [7/83]
DEA is done using linear
programming
Part 22: Stochastic Frontier [8/83]
Regression Basis
Part 22: Stochastic Frontier [9/83]
Maintaining the Theory


One Sided Residuals, ui < 0
Deterministic Frontier
 Statistical Approach: Gamma Frontier. Not
successful
 Nonstatistical Approach: Data Envelopment
Analysis based on linear programming – wildly
successful. Hundreds of applications; an
industry with an army of management
consultants
Part 22: Stochastic Frontier [10/83]
Gamma Frontier
Greene (1980, 1993, 2003)
Part 22: Stochastic Frontier [11/83]
Cost Frontier
Part 22: Stochastic Frontier [12/83]
The Stochastic Frontier Model
Part 22: Stochastic Frontier [13/83]
Stochastic Frontier Disturbances
Part 22: Stochastic Frontier [14/83]
Half Normal Model (ALS)
Closed Skew Normal Distribution
 = v - u where v ~ N[0,2w ] and u = |N[0,u2 ] |
u
2      
f ()      
;  =
    
v
Part 22: Stochastic Frontier [15/83]
Estimating the Stochastic Frontier

OLS





Slope estimator is unbaised and consistent
Constant term is biased downward
e’e/N estimates Var[ε]=Var[v]+Var[u]=v2+ u2[(π-2)/ π]
No estimates of the variance components
Maximum Likelihood


The usual properties
Likelihood function has two modes: OLS with =0 and ML with
>0.
Part 22: Stochastic Frontier [16/83]
Other Possible Distributions
Exponential
fu (ui ) = θexp(-θui ), θ > 0, ui > 0.
LogL(α, β,σ v ,σ u ) =

N
i 1
2

 -(εi + σ 2v /σ u )  εi 
1  σv 
 -lnσ u +   +lnΦ 
.
+
2  σu 
σv


 σ u 
Gamma
σ u-P
fu (ui ) =
exp(-ui /σ u )uP-1
i , ui > 0,P > 0
Γ(P)
LogL(α, β,σ v ,σ u ) =

N
i=1
 -Plnσ u - lnΓ(P) +lnq(P -1,ε i )



2
2
 -(εi + σ v /σ u )  εi  .
 1  σv 
+
 + 2  σ  +lnΦ 

σ
σ
u

v

u




lnq(P -1,εi ) must be approximated using simulation
Part 22: Stochastic Frontier [17/83]
Normal vs. Exponential Models
Part 22: Stochastic Frontier [18/83]
Estimating Inefficiency
 ( z i) 
   
E u i| i  = 
+
z
i


2
( z i ) 
1+  
- i
where
zi =

Part 22: Stochastic Frontier [19/83]
Dual Cost Function
Part 22: Stochastic Frontier [20/83]
Application: Electricity Data
Sample = 123 Electricity Generating Firms, Data from 1970
Variable Mean Std. Dev. Description
========================================================
FIRM
62.000
35.651 Firm number, 1,…,123
COST
48.467
64.064 Total cost
OUTPUT
9501.1
12512. Total generation in KWH
CAPITAL
.14397
.19558 K = Capital share * Cost / PK
LABOR
.00074
.00099 L = Labor share * Cost / PL
FUEL
1.0047
1.2867 F = Fuel share * Cost / PL
LPRICE
7988.6
1252.8 PL = Average labor price
LSHARE
.14286
.056310 Labor share in total cost
CPRICE
72.895
9.5163 PK = Capital price
CSHARE
.22776
.06010 Capital share in total cost
FPRICE
30.807
7.9282 PF = Fuel price in cents ber BTU
FSHARE
.62938
.08619 Fuel share in total cost
LOGC_PF -.38339
1.5385 Log (Cost/PF)
LOGQ
8.1795
1.8299 Log output
LOGQSQ
35.113
13.095 ½ Log (Q)2
Part 22: Stochastic Frontier [21/83]
OLS – Cost Function
+----------------------------------------------------+
| Ordinary
least squares regression
|
| Residuals
Sum of squares
=
2.443509
|
|
Standard error of e =
.1439017
|
| Fit
R-squared
=
.9915380
|
| Diagnostic
Log likelihood
=
66.47364
|
+----------------------------------------------------+
|Variable | Coefficient | Standard Error |t-ratio |P[|T|>t] | Mean of X|
+---------+--------------+----------------+--------+---------+----------+
Constant
-7.29402077
.34427692
-21.186
.0000
LOGQ
.39090935
.03698792
10.569
.0000
8.17947153
LOGPL_PF
.26078497
.06810921
3.829
.0002
5.58088278
LOGPK_PF
.07478746
.06164533
1.213
.2275
.88666047
LOGQSQ
.06241301
.00515483
12.108
.0000
35.1125267
Part 22: Stochastic Frontier [22/83]
ML – Cost Function
+---------------------------------------------+
| Maximum Likelihood Estimates
|
| Log likelihood function
66.86502
|
| Variances: Sigma-squared(v)=
.01185
|
|
Sigma-squared(u)=
.02233
|
|
Sigma(v)
=
.10884
|
|
Sigma(u)
=
.14944
|
| Sigma = Sqr[(s^2(u)+s^2(v)]=
.18488
|
+---------------------------------------------+
|Variable | Coefficient | Standard Error |b/St.Er.|P[|Z|>z] | Mean of X|
+---------+--------------+----------------+--------+---------+----------+
Primary Index Equation for Model
Constant
-7.49421176
.32997411
-22.712
.0000
LOGQ
.41097893
.03599288
11.418
.0000
8.17947153
LOGPL_PF
.26058898
.06554430
3.976
.0001
5.58088278
LOGPK_PF
.05531289
.06001748
.922
.3567
.88666047
LOGQSQ
.06058236
.00493666
12.272
.0000
35.1125267
Variance parameters for compound error
Lambda
1.37311716
.29711056
4.622
.0000
Sigma
.18487506
.00110120
167.884
.0000
Part 22: Stochastic Frontier [23/83]
Estimated Efficiencies
Part 22: Stochastic Frontier [24/83]
Panel Data Applications

Ui is the ‘effect’


Fixed (OLS) or random effect (ML)
Is inefficiency fixed over time?
yit    xit  vit  ui

‘True’ fixed and random effects


Is inefficiency time varying?
Where does heterogeneity show up in the model?
yit  i  xit  (zi )  vit  uit (zi )
Part 22: Stochastic Frontier [25/83]
Main Issues in Panel Data
Modeling

Issues




Capturing Time Invariant Effects
Dealing with Time Variation in Inefficiency
Separating Heterogeneity from Inefficiency
Contrasts – Panel Data vs. Cross Section
Part 22: Stochastic Frontier [26/83]
Familiar RE and FE Models


Wisdom from the linear model
FE: y(i,t) = f[x(i,t)] + a(i) + e(i,t)




RE: y(i,t) = f[x(i,t)] + u(i) + e(i,t)



What does a(i) capture?
Nonorthogonality of a(i) and x(i,t)
The LSDV estimator
How does u(i) differ from a(i)?
Generalized least squares and maximum
likelihood
What are the time invariant effects?
Part 22: Stochastic Frontier [27/83]
Frontier Model for Panel Data



y(i,t) = β’x(i,t) – u(i) +v(i,t)
Effects model with time invariant inefficiency
Same dichotomy between FE and RE –
correlation with x(i,t).

FE case is completely unlike the assumption in
the cross section case
Part 22: Stochastic Frontier [28/83]
Pitt and Lee RE Model
Part 22: Stochastic Frontier [29/83]
Estimating Efficiency
Part 22: Stochastic Frontier [30/83]
Schmidt and Sickles FE Model
lnyit =  + β’xit + ai + vit
estimated by least squares (‘within’)
ˆ j ˆi > 0 (for production or profit)
u
ˆi = max(a
j -)a
ˆi - min(a
ˆ)j > 0 (for cost or distance)
u
ˆi = a
j
Implications: One firm is perfectly efficient.
Either deterministic frontier, or firms
are compared to other firms,
not an absolute standard of zero.
Part 22: Stochastic Frontier [31/83]
A Problem of Heterogeneity
In the “effects” model, u(i) absorbs
two sources of variation


Time invariant inefficiency
Time invariant heterogeneity unrelated to
inefficiency
(Decomposing u(i,t)=u*(i)+u**(i,t)
in the presence of v(i,t) is hopeless.)
Part 22: Stochastic Frontier [32/83]
Time Invariant Heterogeneity
Part 22: Stochastic Frontier [33/83]
A True RE Model (Greene, 2004)
Part 22: Stochastic Frontier [34/83]
Kumbhakar et al.(2011) – True True RE
yit = b0 + b’xit + (ei0 + eit) - (ui0 + uit)
ei0 and eit full normally distributed
ui0 and uit half normally distributed
(So far, only one application)
Colombi, Kumbhakar, Martini, Vittadini, “A Stochastic Frontier with
Short Run and Long Run Inefficiency, 2011
Part 22: Stochastic Frontier [35/83]
Generalized True Random Effects Model
Generalized True Random Effects Stochastic Frontier Model
yit    Ai  Bi  xit  vit  uit
Transient random components
vit  uit
Time varying normal - half normal SF
Persistent random components
Ai  Bi
Time fixed normal - half normal SF
Part 22: Stochastic Frontier [36/83]
A Stochastic Frontier Model with Short-Run and
Long-Run Inefficiency:
Colombi, R., Kumbhakar, S., Martini, G., Vittadini,
G., University of Bergamo, WP, 2011, JPA 2014,
forthcoming.
Tsionas, G. and Kumbhakar, S.
Firm Heterogeneity, Persistent and Transient Technical Inefficiency:
A Generalized True Random Effects Model
Journal of Applied Econometrics. Published online, November, 2012.
Extremely involved Bayesian MCMC procedure. Efficiency components estimated by
data augmentation.
Part 22: Stochastic Frontier [37/83]
Generalized True Random Effects Stochastic Frontier Model
yit  (   w wi   | ei |)  xit  vit  uit
Time varying, transient random components
vit ~ N [0, v2 ], uit | U it | and U it ~ N [0, u2 ],
Time invariant random components
wi ~ N [0,1], ei ~ N [0,1]
The random constant term in this model has a closed skew
normal distribution, instead of the usual normal distribution.
Part 22: Stochastic Frontier [38/83]
Estimating Efficiency in the CSN Model
Moment Generating Function for the Multivariate CSN Distribution
E[exp(tui ) | y i ] 
 T 1 (Rri  t,  )
exp  tRri  12 tt 
 T 1 (Rri ,  )
 (...,  )  Multivariate normal cdf. Parts defined in Colombi et al.
Computed using GHK simulator.
 ei 
 1
u 
0
u i   i1  , t =   ,
 
 
 
 
u
0
 iT 
0
0
 1
0
  , ...,  
 
 
 
 
0
 
 1
Part 22: Stochastic Frontier [39/83]
Estimating the GTRE Model
Part 22: Stochastic Frontier [40/83]
Colombi et al. Classical Maximum Likelihood Estimator
log T (y i  Xi  1T ,   AVA) 

log L   i 1 

log

(
R
(
y

X


1

,

))

nq
log
2
q
i
i
T


T (...)
 T-variate normal pdf.
N
 q (...,  ))  (T  1)  Multivariate normal integral.
Very time consuming and complicated.
“From the sampling theory perspective, the application
of the model is computationally prohibitive when T is
large. This is because the likelihood function depends
on a (T+1)-dimensional integral of the normal
distribution.” [Tsionas and Kumbhakar (2012, p. 6)]
Part 22: Stochastic Frontier [41/83]
Kumbhakar, Lien, Hardaker
Technical Efficiency in Competing Panel Data Models: A Study of
Norwegian Grain Farming, JPA, Published online, September, 2012.
Three steps based on GLS:
(1) RE/FGLS to estimate (,)
(2) Decompose time varying residuals using MoM and SF.
(3) Decompose estimates of time invariant residuals.
Part 22: Stochastic Frontier [42/83]
Maximum Simulated Full Information log likelihood function for the
"generalized true random effects stochastic frontier model"
 2  yit  (   w wir   | U ir |)  xit  
 
 

T

 

 t 1   ( y  (   w   | U |)  x ) 
it
w ir
ir
it
 





 draws from N[0,1]
 ,  
N
1 R


logLS  ,   =  i 1 log  r 1
R
 ,
 w 
wir
|Uir | absolute values of draws from N[0,1]
Part 22: Stochastic Frontier [43/83]
WHO Results: 2014
x  1, log Exp, log Ed , log 2 Ed
z  log PopDen, log PerCapitaGDP,
GovtEff ,VoxPopuli, OECD, GINI
it  Ai  Bi  vit  uit
Part 22: Stochastic Frontier [44/83]
A True FE Model
Part 22: Stochastic Frontier [45/83]
Schmidt et al. (2011) – Results on TFE



Problem of TFE model – incidental parameters problem.
Where is the bias? Estimator of u
Is there a solution?

Not based on OLS

Chen, Schmidt, Wang: MLE for data in group mean deviation
form
yit  yi  [xit  xi ]  (vit  vi )  (uit  ui )
Trades fixed effects problem for the problem of obtaining
the distribution of the deviations of the one sided terms.
Derives a "within MLE" estimator.
Part 22: Stochastic Frontier [46/83]
Part 22: Stochastic Frontier [47/83]
Health Care Systems
Part 22: Stochastic Frontier [48/83]
Part 22: Stochastic Frontier [49/83]
Part 22: Stochastic Frontier [50/83]
WHO Was Interested in Broad
Goals of a Health System
Part 22: Stochastic Frontier [51/83]
They Created a Measure – COMP =
Composite Index
“In order to assess overall efficiency, the first step was to combine the individual
attainments on all five goals of the health system into a single number, which we
call the composite index. The composite index is a weighted average of the five
component goals specified above. First, country attainment on all five indicators
(i.e., health, health inequality, responsiveness-level, responsiveness-distribution,
and fair-financing) were rescaled restricting them to the [0,1] interval. Then the
following weights were used to construct the overall composite measure: 25% for
health (DALE), 25% for health inequality, 12.5% for the level of responsiveness,
12.5% for the distribution of responsiveness, and 25% for fairness in financing.
These weights are based on a survey carried out by WHO to elicit stated
preferences of individuals in their relative valuations of the goals of the health
system.”
(From the World Health Organization Technical Report)
Part 22: Stochastic Frontier [52/83]
Did They Rank
Countries by
COMP? Yes, but
that was not
what produced
the number 37
ranking!
Part 22: Stochastic Frontier [53/83]
Comparative Health Care Efficiency of 191 Countries
Part 22: Stochastic Frontier [54/83]
The US Ranked 37th in Efficiency!
Countries
were ranked
by overall
efficiency
Part 22: Stochastic Frontier [55/83]
Part 22: Stochastic Frontier [56/83]
World Health Organization
Variable
Mean
Std. Dev. Description
==============================================================================
Time Varying: 1993-1997
COMP
75.0062726
12.2051123 Composite health attainment
DALE
58.3082712
12.1442590 Disability adjusted life expectancy
HEXP
548.214857
694.216237 Health expenditure per capita
EDUC
6.31753664
2.73370613 Education
Time Invariant
OECD
.279761905
.449149577 OECD Member country, dummy variable
GDPC
8135.10785
7891.20036 Per capita GDP in PPP units
POPDEN
953.119353
2871.84294 Population density
GINI
.379477914
.090206941 Gini coefficient for income distribution
TROPICS
.463095238
.498933251 Dummy variable for tropical location
PUBTHE
58.1553571
20.2340835 Proportion of health spending paid by govt
GEFF
.113293978
.915983955 World bank government effectiveness measure
VOICE
.192624849
.952225978 World bank measure of democratization
Application: Distinguishing Between Heterogeneity and Inefficiency: Stochastic Frontier
Analysis of the World Health Organization’s Panel Data on National Health Care
Systems, Health Economics, 2005
Part 22: Stochastic Frontier [57/83]
WHO Results Based on FE Model
Part 22: Stochastic Frontier [58/83]
SF Model with Country Heterogeneity
Part 22: Stochastic Frontier [59/83]
Stochastic Frontier Results
Part 22: Stochastic Frontier [60/83]
TECHNICAL EFFICIENCY ANALYSIS CORRECTING FOR
BIASES FROM OBSERVED AND UNOBSERVED
VARIABLES: AN APPLICATION TO A NATURAL RESOURCE
MANAGEMENT PROJECT
Empirical Economics: Volume 43, Issue 1 (2012), Pages 55-72
Boris Bravo-Ureta
University of Connecticut
Daniel Solis
University of Miami
William Greene
Stern School of Business,
New York University
Part 22: Stochastic Frontier [61/83]
The MARENA Program in Honduras
 Several programs have been implemented to address
resource degradation while also seeking to improve
productivity, managerial performance and reduce
poverty (and in some cases make up for lack of public
support).
 One such effort is the Programa Multifase de Manejo de
Recursos Naturales en Cuencas Prioritarias or MARENA
in Honduras focusing on small scale hillside farmers.
OVERALL CONCEPTUAL FRAMEWORK
Part 22: Stochastic Frontier [62/83]
MARENA
Training &
Financing
Natural, Human &
Social Capital
Off-Farm
Income
More Production
and Productivity
More Farm
Income
Sustainability
Working HYPOTHESIS: if farmers receive private benefits
(higher income) from project activities (e.g., training,
financing) then adoption is likely to be sustainable and to
generate positive externalities.
Part 22: Stochastic Frontier [63/83]
Expected Impact Evaluation
Part 22: Stochastic Frontier [64/83]
Methods
 A matched group of beneficiaries and control
farmers is determined using Propensity Score
Matching techniques to mitigate biases that
would stem from selection on observed
variables.
 In addition, we deal with possible self-selection
on unobservables arising from unobserved
variables using a selectivity correction model for
stochastic frontiers recently introduced by
Greene (2010).
Part 22: Stochastic Frontier [65/83]
First Wave MARENA Study
This paper brings together the stochastic frontier
analysis with impact evaluation methodology to analyze
the impact of a development program in Central America.
We compare technical efficiency (TE) across treatment
and control groups using cross sectional data associated
with the MARENA Program in Honduras.
Part 22: Stochastic Frontier [66/83]
“Standard” Sample Selection Linear Model: 2 Step
di = 1[′zi + hi > 0], hi ~ N[0,12]
yi =  + ′xi + i, i ~ N[0,2]
(hi,i) ~ N2[(0,1), (1, , 2)]
(yi,xi) observed only when di = 1.
E[yi|xi,di=1] =  + ′xi + E[i|di=1]
=  + ′xi +  (′zi)/(′zi)
=  + ′xi +  i.
Part 22: Stochastic Frontier [67/83]
MLE for Sample Selection: FIML and “2 Step”
 exp   12 ( i2 / 2 )   ( /  )  z  
i

i
di


N
2


log L(, , , , )   i 1 log 
 2 
1 





 (1  d i ) (  zi )

Two – Step MLE for Sample Selection: Estimate  first then
treat ’zi as data. 2nd step estimation based on selected sample.
 exp   12 (i2 / 2 )   ( /  )  ˆ z
i

i


2

 2
log L(, ,  ,  | ˆ )   d 1 log 
1



i

 (1  di )(ˆ z i )






Part 22: Stochastic Frontier [68/83]
Stochastic Frontier Model: ML
Part 22: Stochastic Frontier [69/83]
Simulated logL for the Standard SF Model
exp[ 12 ( yi    xi  u |Ui |)2 / v2 ]
f ( yi | xi ,| U i |) 
v 2 
f ( yi | xi )  
|Ui |
exp[ 12 ( yi    xi  u |Ui |)2 / v2 ]
p(| Ui |)d | Ui |
v 2 
2exp[  12 | U i |2 ]
p(| U i |) 
, |U i |  0. (Half normal)
2
1 R exp[ 12 ( yi    xi  u |Uir |)2 / v2 ]
f ( y | xi ) 

R r 1
v 2 
2
2

 1 R exp[ 12 ( yi    xi  u |Uir |) / v ] 

logLS (,,u ,v ) = i =1 log   r 1

R

2




v

N
This is simply a linear regression with a random constant term, αi = α - σu |Ui |
Part 22: Stochastic Frontier [70/83]
A Sample Selected SF Model
di = 1[′zi + hi > 0], hi ~ N[0,12]
yi =  + ′xi + i, i ~ N[0,2]
(yi,xi) observed only when di = 1.
i = vi - ui
ui = u|Ui| where Ui ~ N[0,12]
vi = vVi where Vi ~ N[0,12].
(hi,vi) ~ N2[(0,1), (1, v, v2)]
Part 22: Stochastic Frontier [71/83]
Likelihood For a Sample Selected SF Model
f  yi | ( x i , d i , zi ,| U i |) 
 exp   12 ( yi    x i  u | U i |)2 / v2 ) 

v 2 

 di 
  ( yi    x i  u | U i |) /   zi 

 
2

1 

 
f  yi | ( x i , d i , zi )  

|U i |



  (1  d i ) (  zi )



f  yi | ( xi , d i , zi ,| U i |)  f (| U i |)d | U i |
Part 22: Stochastic Frontier [72/83]
Simulated Log Likelihood for a Selectivity
Corrected Stochastic Frontier Model
The simulation is over the inefficiency term.
log LS (, , u , v , , )   i 1 log
N
1 R

R r 1
  exp   12 ( yi    x i  u | U ir |) 2 / v2 )  
di 

v 2 
 




 ( y    x   | U |) /   z   
i
i
u
ir

i
 
 
2

 
1 







 (1  d ) (  z )

i
i


Part 22: Stochastic Frontier [73/83]
A 2 Step MSL Approach
 Estimate  – Probit MLE for selection mechanism
 Estimate [,β,σv,σu,ρ] by maximum simulated likelihood
using selected observations, conditioned on the
estimate
of .
 2nd step standard errors corrected by Murphy-Topel.
Part 22: Stochastic Frontier [74/83]
2nd Step of the MSL Approach
log LS ,C (, , u , v , )   d 1 log
i
1 R

R r 1
 exp   12 ( yi    xi  u | U ir |)2 / v2 )  
 di

 v 2






 ( yi    xi  u | U ir |) / v  ai




 
2
 
1


 
 
  (1  d )(a )

i
i






where ai = ˆ zi
1 R
log LS ,C (, , u , v , )   d 1 log  r 1
i
R
 exp   12 ( yi    xi  u | U ir |)2 / v2 )  


v 2 






 ( yi    xi  u | Uir |) / v  ai 

 
2

1





Part 22: Stochastic Frontier [75/83]
JLMS Estimator of ui


 exp  12 ( yi  ˆ  ˆ x i  ˆ u | U ir |) 2 / ˆ v2 ) 




ˆ v 2 
ˆf  

ir
  ˆ ( yi  ˆ  ˆ x i  ˆ u | U ir |) / ˆ v  ai  

 
2

1  ˆ
 
 
1 R
1 R
Aˆi =  r 1 ( ˆ u | U ir |) fˆir , Bˆi   r 1 fˆir
R
R
Aˆi
uˆi  Estimator of E [ui |i ] 
Bˆi
R
R
fˆir
  r 1 gˆ ir | ˆ uU ir | where gˆ ir  R
,  r 1 gˆ ir  1
 r 1 fˆir
Part 22: Stochastic Frontier [76/83]
Variables Used
in the Analysis
Production
Participation
Part 22: Stochastic Frontier [77/83]
Findings from the First Wave
B
C
U
M
=
=
=
=
Benefits recipients
Controls
Unmatched Sample
Matched Subsamples (Propensity Score Matching)
Part 22: Stochastic Frontier [78/83]
Findings from the first Wave

Avg. TE for Beneficiaries is 71% in all models except for BENEF-U-SS
where average TE is 80%.

Average TE for control farmers ranges from 39% (CONTROL-U) to 66%
(CONTROL-U-SS).

TE gap between beneficiaries and control decreases with matching.
This result is expected since PSM makes both studied samples comparable.

Correcting for Sample Selection further decreases this gap.

TE for Beneficiaries remains consistently higher than for control farmers.
Part 22: Stochastic Frontier [79/83]
A Panel Data Model
 Selection takes place only at the baseline.
 There is no attrition.
d i 0  1[zi 0  hi 0 > 0]
Sample Selector
yit    wi  x it  vit  uit , t  0,1,... Stochastic Frontier
Selection effect is exerted on wi ; Corr(hi 0 , wi ,)  
P( yit , d i 0 )  P(d i 0 ) P( yit | d i 0 )
Conditioned on the selection (hi 0 ) observations are independent.
P( yi 0 , yi1 ,..., yiT | d i 0 )   t 0 P( yit | d i 0 )
T
I.e., the selection is acting like a permanent random effect.
P( yi 0 , yi1 ,..., yiT , d i 0 )  P( d i 0 ) t 0 P( yit | d i 0 )
T
Part 22: Stochastic Frontier [80/83]
Simulated Log Likelihood
Using the Two Step Approach
log LS ,C (, , u , v , )
1 R
  d 1 log  r 1
i
R

T
t 0
 exp   12 ( yit    xit  u | U itr |)2 / v2 )  


v 2 






 ( yit    xit  u | U itr |) / v  ai 0 

 
2

1 

 
Part 22: Stochastic Frontier [81/83]
Main Empirical Conclusions from Waves 0 and 1




Benefit group is more efficient in both years
The gap is wider in the second year
Both means increase from year 0 to year 1
Both variances decline from year 0 to year 1
Part 22: Stochastic Frontier [82/83]
Part 22: Stochastic Frontier [83/83]