This paper primarily reviews the panel stochastic frontier (SF) model in which the composite error term εit has four components, i.e. εit=τi−ηi+vit−uit, where ηi and uit are the persistent and transient inefficiency components, τi is the random firm effect and vit is the random noise....

This paper derives an analytic approximation formula for the likelihood function of the true random effects stochastic frontier model of Greene (2005) with a time span T = 2. Gaussian quadrature procedure and simulation-based method is not required for the closed-form approach. Combining the...