A non-neutral, non-monotonic inefficiency effect model applied to Greek banking sector.

Abstract

The objective of this work is to propose and estimate a non-neutral, non-monotonic inefficiency effect model which combines Huang and Liu (1994) non neutral production frontier model with Wang (2002) non monotonic efficiency effect model and in addition incorporates the environmental variables in the deterministic kernel of the frontier in the way suggested by Coelli, Perelman and Romano (1999). This generalized stochastic frontier model contains also a special case, the monotonic inefficiency effect model of Battese and Coelli (1995) and Good et all (1993) model. In the empirical model, we use detailed input and output data to estimate an input distance function using stochastic frontier approach (SFA). The data set consists of yearly observations for 32 banks over the period 1998-2008.