DOI

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.

Язык оригиналаанглийский
Страницы (с-по)145-158
Число страниц14
ЖурналDependence Modeling
Том10
Номер выпуска1
DOI
СостояниеОпубликовано - 1 янв 2022

    Предметные области Scopus

  • Теория вероятности и статистика
  • Моделирование и симуляция
  • Прикладная математика

ID: 99587055