Efficiency Measurement Using a “True” Random Effects and Random Parameter Stochastic Frontier Models: An Application to Rural and Community Banks in Ghana
In this paper, we attempt to compare the results of stochastic
frontier models that control for unobserved heterogeneity in the inefficiency
model, and unobserved (parameter) heterogeneity in the production model
respectively. We estimate a “true” random effect, and random parameter
stochastic frontier models in a panel data framework. An application of these
models is presented using data of rural and community banks in Ghana from 2006
to 2011. Our results show that the two models address the issue of unobserved
heterogeneity, and therefore omitted unobserved heterogeneity in the production
model may always show up in the estimated inefficiency.
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