CONSISTENT METHOD OF MOMENTS ESTIMATION OF THE TRUE FIXED EFFECTS MODEL

Abstract. A couple a years ago William H. Greene introduced the so called ’True fixed e↵ects estimator ’ (TFE), which is intended to separate between het-erogeneity and eciency in stochastic frontier analysis. We would say that it has had huge impact on applied stochastic frontier analysis. One problem with the original TFE estimator, is that it is biased in cases with finite time observations. For the normal-half-normal model this problem was solved by Chen et al. (2014) based on maximum likelihood estimation of the within-transformed model. In this study we show the possibilities with method of moment estimation. This approach is more straightforward computational and is more flexible than maximum likeli-hood estimation since the estimators are not as dependent on the distributional assumptions and do not hinges on an explicit distribution of the random error. We only assume symmetry and for more complicated models also a fixed fourth order cumulant. Key words and phrases. Stochastic frontier, Fixed e↵ects, Panel data, Method of moments