An Empirical Model of Behavioral Heterogeneity

Authors

  • Subal C Kumbhakar Professor, SUNY, Binghamton
  • Mike G Tsionas Lancaster University Management School & Athens University of Economics and Business

DOI:

https://doi.org/10.15353/rea.v8i2.1512

Abstract

In this paper we propose a new latent class/mixture model (LCM) to determine whether firms behave like profit maximizers or just cost minimizers when there is no additional sample separation information. Since some firms might be maximizing profit while others might minimize cost, the LCM with behavioral heterogeneity can be quite useful. Estimation of the LCM amounts to mixing a cost minimization and a profit maximization model. Using the U.S. airlines data we find that after deregulation about 15% of the airlines are found to be consistent with profit maximizing behavior. 

Author Biographies

Subal C Kumbhakar, Professor, SUNY, Binghamton

Distinguished Professor, Department of Economics

Mike G Tsionas, Lancaster University Management School & Athens University of Economics and Business

Professor, Department of Economics

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Published

2017-02-04

Issue

Vol. 8 No. 2 (2016)

Section

Articles

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