Likelihood computation in the normal-gamma stochastic frontier model

Bernardo B. de Andrade, Geraldo S. Souza 

Computational Statistics 33 (2018) 967-982

https://doi.org/10.1007/s00180-017-0768-5

Likelihood-based estimation of the normal-gamma stochastic frontier model requires numerical integration to solve its likelihood. For the integration methods found in the literature, it is not known under which conditions they perform optimally or if there is a method that performs better than the others. Our aim is to study the applicability of available methods and to compare them based on their ability to approximate the loglikelihood. We consider three principles—numerical quadrature, inversion of the characteristic function and Monte Carlo—and assess the effect of the parameters on the accuracy of each of six numerical procedures.