Specification tests and a reformulation of frontier models: An alternative approach to efficiency estimation

Following Farrell's (1957) definitions of firm's technical and allocative efficiencies and the formulation of composite error stochastic frontier model by Aigner, Lovell and Schmidt (1977), a substantial amount of research work has been performed measuring firm's technical inefficiency using this model with various distributional assumptions of technical inefficiency. Most stochastic frontier models are overly restrictive both in terms of the functional form and the distributional assumptions of the error terms. Unlike other econometric models, frontier models are rarely subjected to rigorous specification tests. The first part of this dissertation is devoted in developing several straightforward specification tests for these models. The tests are based on information matrix and moment tests principles.