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We modify the stochastic frontier model of Aigner, Lovell, and Schmidt to allow the one-sided part of the disturbance to have a two-parameter Gamma distribution rather than the less flexible half-normal distribution. Maximum-likelihood estimation and the estimation of firm-specific inefficiency estimates require the evaluation of integrals which have no closed form and for which there are no polynomial approximations available. We consider two methods of computing these integrals. We also present a corrected OLS estimator based on the methods of moments. An application is presented for illustration. We find that for these data, the gamma distribution produces results which differ noticeably from those of three alternative formulations.
William H. Greene (Mon,) studied this question.