The traditional predictor of technical inefficiency proposed by Jondrow et al. (1982) is a conditional expectation. We study whether, and by how much, the predictor can be improved by using auxiliary information in the conditioning set. To do so, we use simulations to study two types of...

Technical inefficiency of production reflects a shortfall of output from the potential permitted by inputs. Allocative inefficiency reflects deviations from the optimal ratio of inputs. It is the absolute value of allocative inefficiency that is economically important. Adding allocative...