Estimating the statistical cost curve: an application of the stochastic frontier technique

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Abstract
Estimates of the statistical cost curve are usually derived using the least squares technique, with the implication that the deviations from the fitted relationship are normally distributed. However, a theoretical restriction on the distribution of the disturbances implies that the least squares technique is inappropriate. An alternative specification and estimation technique are considered and applied in a study of the operating costs of British crematoria.