Estimation of Input-Specific Technical and Allocative Inefficiency in Stochastic Frontier Models.

This paper considers an extension of technical inefficiency to a mor e disaggregate level, viz., input-specific technical inefficiency, based on a stochastic production frontier. Allocative inefficiency is modeled as a departure from the first order conditions for cost mini mization. The production function and the first order conditions for cost minimization, derived from a Cobb-Douglas technology, form the basis of the likelihood function to obtain the maximum likelihood estimates. Panel data on U.S. Class 1 railroads are used to estimate technical inefficiency specific to labor and fuel for each road. Cost of allocative inefficiencies are also calculated for the individual roads. Copyright 1988 by Royal Economic Society.