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STOCHASTIC FRONTIER ANALYSIS

STOCHASTIC FRONTIER ANALYSIS

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STOCHASTIC FRONTIER • In (1) the frontier is deterministic. All deviations from maximum output are ascribed to inefficiency. • However sometimes maximum output itself might be lower (higher) due to exogenous shocks. The production frontier itself may be shifting. • Figure 2 • Y = ƒ(x; β).exp(v).exp(-u) v ≤ 0 and u ≥ 0

  Frontier, Stochastic, Stochastic frontier

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