Research output: Contribution to journal › Article › peer-review
Modeling the error terms in stochastic frontier models of production systems requires multivariate distributions with certain characteristics. We argue that canonical vine copulas offer a natural way to model the pairwise dependence between the two main error types that arise in production systems with multiple inputs. We introduce a vine copula construction that permits dependence between themagnitude (but not the sign) of the errors. By using a recently proposed family of copulas, we show how to construct a simulated likelihood based on C-vines. We discuss issues that arise in the estimation of such models and outline why such models better reflect the dependencies that arise in practice. Monte Carlo simulations and a classic empirical application to electricity generation plants illustrate the utility of the proposed approach.
Original language | English |
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Pages (from-to) | 145-158 |
Number of pages | 14 |
Journal | Dependence Modeling |
Volume | 10 |
Issue number | 1 |
DOIs | |
State | Published - 1 Jan 2022 |
ID: 99587055