Information Matrix Tests for the Composed Error Frontier Model
University of Illinois, Bureau of Economics & Business Research Working Paper No. 99-0101
25 Pages Posted: 15 Apr 1999
Date Written: March 1999
Estimation of composed error frontier models is generally conducted under certain strict assumptions. In practice however, these assumptions are not tested thoroughly. This is probably because simple workable tests are not yet available for these models. This paper develops easily computable specification tests for half-normal composed error frontier models. The tests are based on the information matrix (IM) and moment test principles. These tests are applied to the well - known Cowing (1970) steam-electric data set. Our tests reveal no serious misspecification of the cost model, while for the output model the null hypothesis of correct specification of rejected strongly.
JEL Classification: C19
Suggested Citation: Suggested Citation