Accepted author manuscript, 754 KB, PDF document
Available under license: CC BY: Creative Commons Attribution 4.0 International License
Final published version
Licence: CC BY: Creative Commons Attribution 4.0 International License
Research output: Contribution to Journal/Magazine › Journal article › peer-review
<mark>Journal publication date</mark> | 1/01/2024 |
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<mark>Journal</mark> | European Journal of Operational Research |
Issue number | 1 |
Volume | 312 |
Number of pages | 9 |
Pages (from-to) | 315-323 |
Publication Status | Published |
Early online date | 18/08/23 |
<mark>Original language</mark> | English |
In this paper we propose a general inefficiency model, in the sense that technical inefficiency is, simultaneously, a function of all inputs, outputs, and contextual variables. We recognize that change in inefficiency is endogenous or rational, and we propose an adjustment costs model with firm-specific but unknown adjustment cost parameters. When inefficiency depends on inputs and outputs, the firm's optimization problem changes as the first order conditions must take into account the dependence of inefficiency on the endogenous variables of the problem. The new formulation introduces statistical challenges which are successfully resolved. The model is estimated using Maximum Simulated Likelihood and an empirical application to U.S. banking is provided.