A Stochastic Frontier Model with Endogenous Treatment Status and Mediator

Abstract

Government policies are frequently used to promote productivity. Some policies are designed to enhance production technology, while others are meant to improve production efficiency. An important issue to consider when designing and evaluating policies is whether a mediator is required or effective in achieving the desired final outcome. To better understand and evaluate the policies, we propose a new stochastic frontier model with a treatment status and a mediator, both of which are allowed to be endogenous. The model allows us to decompose the total program (treatment) effect into technology and efficiency components, and to investigate whether the effect is derived directly from the program or indirectly through a particular mediator. Supplementary materials for this article are available online.

KEY WORDS:

• Mediation analysis
• Stochastic frontier models
• Treatment effect.

ACKNOWLEDGMENTS

The authors thank the editor Rajeev Dehejia, an associate editor, three referees, Martin Huber, and the participants at the 2015 European Workshop on Efficiency and Productivity Analysis and the 2015 Annual Conference of the International Association of Applied Econometrics for very helpful comments and suggestions.

Additional information

Funding

Yu-Chin Hsu gratefully acknowledges the research support from the Ministry of Science and Technology of Taiwan (MOST103-2628-H-001-001-MY4) and the Career Development Award of Academia Sinica, Taiwan.