Stochastic Frontiers and Asymmetric Information Models
This article is an attempt to shed light on the specification and identification of inefficiency in stochastic frontiers. We consider the case of a regulated firm or industry. Applying a simple principal-agent framework that accounts for informational asymmetries to this context, we derive the associated production and cost frontiers. Noticeably this approach yields a decomposition of inefficiency into two components: The first component is a pure random term while the second component depends on the unobservable actions taken by the agent (the firm). This result provides a theoretical foundation to the usual specification applied in the literature on stochastic frontiers. An application to a panel data set of French urban transport networks serves as an illustration.
View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00622849/en/ Published, Journal of Productivity Analysis, 2002, 18, 145-159