Stochastic Frontiers and Asymmetric Information Models

Philippe Gagnepain (1) , Marc Ivaldi (2)

1 Departamento de Economía
2 TSE-R - Toulouse School of Economics

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.

Domaines: Economies et finances

Philippe Gagnepain, Marc Ivaldi. Stochastic Frontiers and Asymmetric Information Models. Journal of Productivity Analysis, 2002, 18, pp.145-159. ⟨hal-00622849⟩