Non-parametric tests of productive efficiency with errors-in-variables

We develop a non-parametric test of productive efficiency that accounts for errors-in-variables, following the approach of Varian. [1985. Nonparametric analysis of optimizing behavior with measurement error. Journal of Econometrics 30(1/2), 445-458]. The test is based on the general Pareto-Koopmans notion of efficiency, and does not require price data. Statistical inference is based on the sampling distribution of the L-infinity norm of errors. The test statistic can be computed using a simple enumeration algorithm. The finite sample properties of the test are analyzed by means of a Monte Carlo simulation using real-world data of large EU commercial banks. (c) 2005 Elsevier B.V. All rights reserved.