Neoclassical versus Frontier Production Models ? Testing for the Skewness of Regression Residuals

T Kuosmanen, Mogens Fosgerau

    Research output: Contribution to journalJournal articleResearchpeer-review

    Abstract

    The empirical literature on production and cost functions is divided into two strands. The neoclassical approach concentrates on model parameters, while the frontier approach decomposes the disturbance term to a symmetric noise term and a positively skewed inefficiency term. We propose a theoretical justification for the skewness of the inefficiency term, arguing that this skewness is the key testable hypothesis of the frontier approach. We propose to test the regression residuals for skewness in order to distinguish the two competing approaches. Our test builds directly upon the asymmetry of regression residuals and does not require any prior distributional assumptions.
    Original languageEnglish
    JournalThe Scandinavian Journal of Economics
    Volume111
    Issue number2
    Pages (from-to)351-367
    ISSN0347-0520
    DOIs
    Publication statusPublished - 2009

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