Technical and allocative inefficiency in production systems: a vine copula approach
Modeling the error terms in stochastic frontier models of production systems requires multivariate distributions with certain characteristics. We argue that canonical vine copulas offer a natural way to model the pairwise dependence between the two main error types that arise in production systems w...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
| Published: |
De Gruyter
2022-05-01
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| Series: | Dependence Modeling |
| Subjects: | |
| Online Access: | https://doi.org/10.1515/demo-2022-0108 |
| _version_ | 1797998421901049856 |
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| author | Zhai Jian James Robert Prokhorov Artem |
| author_facet | Zhai Jian James Robert Prokhorov Artem |
| author_sort | Zhai Jian |
| collection | DOAJ |
| description | Modeling the error terms in stochastic frontier models of production systems requires multivariate distributions with certain characteristics. We argue that canonical vine copulas offer a natural way to model the pairwise dependence between the two main error types that arise in production systems with multiple inputs. We introduce a vine copula construction that permits dependence between the magnitude (but not the sign) of the errors. By using a recently proposed family of copulas, we show how to construct a simulated likelihood based on C-vines. We discuss issues that arise in the estimation of such models and outline why such models better reflect the dependencies that arise in practice. Monte Carlo simulations and a classic empirical application to electricity generation plants illustrate the utility of the proposed approach. |
| first_indexed | 2024-04-11T10:48:30Z |
| format | Article |
| id | doaj.art-1cfcd60cbc764a9ea6145f620e889b3c |
| institution | Directory Open Access Journal |
| issn | 2300-2298 |
| language | English |
| last_indexed | 2024-04-11T10:48:30Z |
| publishDate | 2022-05-01 |
| publisher | De Gruyter |
| record_format | Article |
| series | Dependence Modeling |
| spelling | doaj.art-1cfcd60cbc764a9ea6145f620e889b3c2022-12-22T04:28:59ZengDe GruyterDependence Modeling2300-22982022-05-0110114515810.1515/demo-2022-0108Technical and allocative inefficiency in production systems: a vine copula approachZhai Jian0James Robert1Prokhorov Artem2Discipline of Business Analytics, Business School, University of Sydney, Sydney, NSW, AustraliaDiscipline of Business Analytics, Business School, University of Sydney, Sydney, NSW, AustraliaDiscipline of Business Analytics, Business School, University of Sydney, Sydney, AustraliaModeling the error terms in stochastic frontier models of production systems requires multivariate distributions with certain characteristics. We argue that canonical vine copulas offer a natural way to model the pairwise dependence between the two main error types that arise in production systems with multiple inputs. We introduce a vine copula construction that permits dependence between the magnitude (but not the sign) of the errors. By using a recently proposed family of copulas, we show how to construct a simulated likelihood based on C-vines. We discuss issues that arise in the estimation of such models and outline why such models better reflect the dependencies that arise in practice. Monte Carlo simulations and a classic empirical application to electricity generation plants illustrate the utility of the proposed approach.https://doi.org/10.1515/demo-2022-0108vine copulasproduction frontierallocative inefficiencytechnical inefficiency62h0562p2091b38 |
| spellingShingle | Zhai Jian James Robert Prokhorov Artem Technical and allocative inefficiency in production systems: a vine copula approach Dependence Modeling vine copulas production frontier allocative inefficiency technical inefficiency 62h05 62p20 91b38 |
| title | Technical and allocative inefficiency in production systems: a vine copula approach |
| title_full | Technical and allocative inefficiency in production systems: a vine copula approach |
| title_fullStr | Technical and allocative inefficiency in production systems: a vine copula approach |
| title_full_unstemmed | Technical and allocative inefficiency in production systems: a vine copula approach |
| title_short | Technical and allocative inefficiency in production systems: a vine copula approach |
| title_sort | technical and allocative inefficiency in production systems a vine copula approach |
| topic | vine copulas production frontier allocative inefficiency technical inefficiency 62h05 62p20 91b38 |
| url | https://doi.org/10.1515/demo-2022-0108 |
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