Blaming the Exogenous Environment? Conditional Efficiency Estimation with Continuous and Discrete Environmental Variables

31 Pages Posted: 8 Jan 2009

See all articles by K. De Witte

K. De Witte

University of Leuven (KUL); Maastricht University

Mika Kortelainen

Aston University - Aston Business School

Date Written: December 2008

Abstract

This paper proposes a fully nonparametric framework to estimate relative efficiency of entities while accounting for a mixed set of continuous and discrete (both ordered and unordered) exogenous variables. Using robust partial frontier techniques, the probabilistic and conditional characterization of the production process, as well as insights from the recent developments in nonparametric econometrics, we present a generalized approach for conditional efficiency measurement. To do so, we utilize a tailored mixed kernel function with a data-driven bandwidth selection. So far only descriptive analysis for studying the effect of heterogeneity in conditional efficiency estimation has been suggested. We show how to use and interpret nonparametric bootstrap-based significance tests in a generalized conditional efficiency framework. This allows us to study statistical significance of continuous and discrete environmental variables. The proposed approach is illustrated by a sample of British pupils from the OECD Pisa data set. The results show that several exogenous discrete factors have a significant effect on the educational process.

Keywords: Nonparametric estimation, Conditional efficiency measures, Environmental factors, Generalized kernel function, Education

JEL Classification: C14, C61, I21

Suggested Citation

De Witte, Kristof and Kortelainen, Mika, Blaming the Exogenous Environment? Conditional Efficiency Estimation with Continuous and Discrete Environmental Variables (December 2008). Available at SSRN: https://ssrn.com/abstract=1323344 or http://dx.doi.org/10.2139/ssrn.1323344

Kristof De Witte (Contact Author)

University of Leuven (KUL) ( email )

Naamsestraat 69
Leuven, Vlaams Brabant B-3000
Belgium

HOME PAGE: http://www.feb.kuleuven.be

Maastricht University ( email )

Boschstraat 24
Maastricht, Vlaams-Brabant 6211 AX
Netherlands
003216326656 (Phone)

HOME PAGE: http://www.feb.kuleuven.be

Mika Kortelainen

Aston University - Aston Business School ( email )

Aston Triangle
Birmingham, B47ET
United Kingdom

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