Traditional panel stochastic frontier models do not distinguish between unobserved individual heterogeneity and inefficiency. They thus force all time-invariant individual heterogeneity into the estimated inefficiency. Greene (2005) proposes a true fixed-effect stochastic frontier model which,...

In this paper we consider a fixed-effects stochastic frontier model. That is, we have panel data, fixed individual (firm) effects, and the usual stochastic frontier analysis (SFA) composed error.