Cost Minimizing Behavior in U.S. Manufacturing

A stochastic frontier approach is used to examine efficiency of the U.S. manufacturing sector over the 1958 – 1996 time period. A National Bureau of Economic Research (NBER) panel data set was used to estimate a translog cost frontier. Both fixed effects and random effects models were estimated. The estimation results were surprisingly robust and show not only a great deal of inefficiency within the manufacturing sector but also a great deal of variation in efficiency within this sector.