The Measurement of Efficiency of UK Airports, Using a Stochastic Latent Class Frontier Model

Abstract

In this paper, the latent stochastic frontier model is used to estimate the technical efficiency of UK airports. These airports are ranked according to their technical efficiency for the period 2000–06 and the airports are disentangled and segmented by the cost frontier model, which leads us to advise the implementation of policies by segments. Economic implications arising from the study are also considered.

Notes

1. See Charnes et al. (1995) for details.

2. The statistic is constructed as −2 · (logLF_r − logLF_u ), where LF_r and LF_u are the log‐likelihood functions evaluated at the restricted and unrestricted estimates. The statistic under the null hypothesis, θ_j = θ_{j −1}, follows a Chi‐squared distribution with degrees of freedom equal to the number of restrictions being tested. If the null hypothesis is rejected, the preferred model is that with J classes.

3. The program used to estimate the model was Limdep 9.0.