STOCHASTIC PRODUCTION FRONTIERS AND TECHNICAL INEFFICIENCY : EVIDENCE FROM THE TUNISIAN MANUFACTURING FIRMS

Mokhtar KOUKI (LEGI-Ecole Polytechnique de Tunisie)

The present paper focuses attention on the sensitivity of technical inefficiency to most commonly used one-sided distributions of the inefficiency error term, namely the truncated normal, the half-normal and the exponential distributions. A generalized version of the half-normal, which does not embody the zero-mean restriction, is also explored. For each distribution, the likelihood function and the counterpart of \ Jondrow et al. (1982) estimator of technical efficiency are explicitly stated. Based on our panel data set, related to Tunisian manufacturing firms over the period 1983-1993, formal tests lead to a strong rejection of the zero-mean restriction embodied in the half normal distribution. Our main conclusion is that the degree of measured inefficiency is very sensitive to the postulated assumptions about the distribution of the one-sided error term. The estimated inefficiency indices are, however, unaffected by the choice of the functional form for the production function.