A new Stata command for the consistent estimation of fixed-effects stochastic frontier models is now available. sftfe fits the following fixed-effects stochastic frontier model:

where is a normally distributed error term and is a one-sided strictly non-negative term representing inefficiency. The sign of the term is positive or negative depending on whether the frontier describes a cost or production function, respectively. sftfe allows the underlying mean and variance of the inefficiency (as well as the variance of the idiosyncratic error) to be expressed as functions of exogenous covariates. Of special note is that sftfe allows the estimation of models in which the inefficiency is assumed to follow a first-order autoregressive process.

Technical details related to the estimators implemented in the command can be found in the article:

Belotti, F., Ilardi, G., (2017). Consistent Inference in Fixed-effects Stochastic Frontier Models, Journal of Econometrics.

The command was written together with Giuseppe Ilardi.

You may install it by typing

net install sftfe, all from(http://www.econometrics.it/stata)in your Stata command bar.