Time Invariant and Time Varying Inefficiency: Airlines Panel Data

These data are from the pre-deregulation days of the U.S. domestic airline industry. The data are an extension of Caves, Christensen, and Trethaway (1980) and Trethaway and Windle (1983). The original raw data set is a balanced panel of 25 firms observed over 15 years (1970-1984). After removing observations because of strikes, mergers, and missing values, the panel becomes an unbalanced one with a total of 256 observations on 25 firms. In a few cases, the time series contain gaps. Some of the models discussed earlier, notably Battese and Coelli (1992, 1995) and Cornwell, Schmidt, and Sickles (1990), involve functions of time, t which would have to be computed carefully to insure the correct treatment of ‘time;’ the gaps must be accounted for in the computations. Also, for firms that are not observed in the first year of the overall data set, when we consider functions of ‘time’ with respect to a baseline, in keeping with the spirit of the stochastic frontier model, this baseline will be for the specific firm, not for the overall sample window. The unbalanced panel has 256 observations with Ti= 4, 7, 11 and 13 (one firm each), 12 (two firms) 9, 10 and 14 (three firms), 2 (four firms) and 15 (six firms). We will use these data to illustrate the estimation of frontier models with panel data and time varying and time invariant inefficiency.