Simar and Wilson two-stage efficiency analysis for Stata

Oleg Badunenko, Harald Tauchmann

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Abstract

When analyzing the determinants of production efficiency, regressing efficiency scores estimated by DEA on explanatory variables has much intuitive appeal. Simar and Wilson (2007) show that this conventional two-stage estimation procedure suffers from severe flaws, that render its results, and in particular statistical inference based on them, questionable. At the same time they propose a statistically grounded bootstrap based two-stage estimator that eliminates the above mentioned weaknesses of its conventional predecessors and comes in two variants. This article introduces the new Stata command simarwilson that implements either variant of the suggested estimator in Stata. The command allows for various options, and extends the original procedure in some respects. For instance, it allows for analyzing both, output- and input-oriented efficiency. To demonstrate the capabilities of the new command simarwilson we use data from the Penn World Tables and the Global Competitiveness Report by the World Economic Forum to perform a cross-country empirical study about the importance of quality of governance in a country for its efficiency of output production.
Original languageEnglish
Pages (from-to)950-988
Number of pages39
JournalThe Stata Journal
Volume19
Issue number4
Early online date18 Dec 2019
DOIs
Publication statusPublished - 31 Dec 2019

Keywords

  • DEA
  • two-stage estimation
  • truncated regression
  • bootstrap
  • efficiency
  • bias correction
  • environmental variables

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