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We present a panel stochastic frontier model that handles the endogeneity problem. This model can treat the endogeneity of both frontier and inefficiency variables. We apply our method to examine the technical efficiency of Japanese cotton spinning industry. Our results indicate that market concentration is endogenous, and when its endogeneity is properly handled, it has a larger negative impact on the technical efficiency of cotton spinning plants. We find that the exogenous model substantially overestimates efficiency in concentrated markets.


© 2017, Informa UK Limited, trading as Taylor & Francis Group. Original published version available at

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Creative Commons Attribution-NonCommercial 4.0 International License
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License

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Journal of Applied Economics



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Finance Commons



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