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ABSTRACT
We consider the case of production units arranged into a number of groups. All units within a group choose output–input combinations from the same production possibilities set that is represented by a stochastic frontier model. The metafrontier is the envelope of the group-specific frontiers. We are interested in the metafrontier distance, which is the amount by which the group-specific frontier lies below the metafrontier.
Previous work has measured the metafrontier distance using the deterministic portion of the frontier. In a stochastic frontier model, this is not appropriate. We show how to evaluate the metafrontier distance, and we demonstrate the empirical relevance of this issue.
Notes
1We are grateful to a referee for raising the issue of identification. This is a serious issue that we have not fully resolved, and we hope to address it more systematically in a later paper.