Partial frontier efficiency analysis for Stata
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Date
2011-08-08
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Abstract
Despite its frequent use in applied work, nonparametric approaches
to efficiency analysis, namely data envelopment analysis (DEA) and free disposal
hull (FDH), have bad reputations among econometricians. This is mainly due
to DEA and FDH representing deterministic approaches that are highly sensitive
to outliers and measurement errors. However, recently, so-called partial frontier
approaches namely order-m and order-alpha have been developed. They generalize
FDH by allowing for super-efficient observations to be located beyond the estimated production-possibility frontier. Although these methods are purely nonparametric too, sensitivity to outliers is substantially reduced by partial frontier
approaches enveloping just a sub-sample of observations. We introduce the new
Stata commands orderm and orderalpha that implement order-m, order-alpha, and
FDH efficiency analysis in Stata. The commands allow for several options, such
as statistical inference based on sub-sampling bootstrap.
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Keywords
decision making unit, efficiency, free disposal hull, non-parametric, orderalpha, orderm, outlier-robust, partial frontier