A frontier approach to disequilibrium models

Abstract

Due to aggregation (Muellbauer, 1978), market frictions (Benassy, 1982) and stochastic manipulable perceived rationing (Weinrich, 1984) it is very likely that the quantity transacted is less than the short side of a market affected by quantity rationing. This is we might observe in a given market simultaneously excess demand and excess supply. In this paper we suggest a frontier approach to specify these inefficiencies in disequilibrium models. This is done essentially by adding a truncated disturbance term to the traditional symmetric error. The new specification allows us to test for the presence of any type of inefficiency.