Model selection in stochastic frontier analysis with an application to maize production in Kenya

This paper shows how to compute the standard errors for partial effects of exogenous firm characteristics influencing firm inefficiency under a range of popular stochastic frontier model specifications. We also develop an R²–type measure to summarize the overall explanatory power of the exogenous factors on firm inefficiency. The paper also applies a recently developed model selection procedure to choose among alternative stochastic frontier specifications using data from household maize production in Kenya. The magnitude of estimated partial effects of exogenous household characteristics on inefficiency turns out to be very sensitive to model specification, and the model selection procedure leads to an unambiguous choice of best model. We propose a bootstrapping procedure to evaluate the size and power of the model selection procedure. The empirical application also provides further evidence on how household characteristics influence technical inefficiency in maize production in developing countries.