A Bayesian analysis of multiple-output production frontiers

Abstract

In this paper we develop Bayesian tools for estimating multi-output production frontiers in applications where only input and output data are available. Firm-specific inefficiency is measured relative to such frontiers. Our work has important differences from the existing literature, which either assumes a classical econometric perspective with restrictive functional form assumptions, or a non-stochastic approach which directly estimates the output distance function. Bayesian inference is implemented using a Markov chain Monte Carlo algorithm. A banking application shows the ease and practicality of our approach. © 2000 Elsevier Science S.A. All rights reserved.