Lurking in the Shadows: Testing For Shadow Price Differences with Applications in Economic Regulation

Posted: 20 Nov 2017 Last revised: 13 Dec 2017

See all articles by Ronan Gallagher

Ronan Gallagher

University of Edinburgh - Edinburgh Business School

Timo Kuosmanen

Aalto University School of Business

Barry Quinn

Queen's University Management School

Date Written: November 17, 2017

Abstract

This paper introduces a novel approach for statistically testing group differences in shadow price estimates produced by non parametric efficiency models. The test can be applied across groups being assessed using a common efficient frontier or across groups assessed using different efficient frontiers. We demonstrate empirical use cases of each by analysing the impact of regulatory imposition in European banking and European sport respectively. Each example suggests significant unintended consequences of regulation.

Keywords: stochastic DEA, shadow prices statistical testing, efficiency analysis, frontier estimation, stochastic nonparametric envelopment of data (StoNED), economic regulation

JEL Classification: C44, C12, C14

Suggested Citation

Gallagher, Ronan and Kuosmanen, Timo and Quinn, Barry, Lurking in the Shadows: Testing For Shadow Price Differences with Applications in Economic Regulation (November 17, 2017). Available at SSRN: https://ssrn.com/abstract=3072863

Ronan Gallagher

University of Edinburgh - Edinburgh Business School ( email )

29 Buccleuch Pl
Edinburgh, Scotland EH8 9JS
United Kingdom

Timo Kuosmanen

Aalto University School of Business ( email )

P.O. Box 1210
Runeberginkatu 22-24
Helsinki, Finland 00101
Finland

HOME PAGE: http://www.aalto.fi

Barry Quinn (Contact Author)

Queen's University Management School ( email )

Riddel Hall
185 Stranmillis Road
Belfast, BT9 5EE
United Kingdom

HOME PAGE: http://www.barryquinn.com

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