A Switching Frontier Model for Imperfect Sample Separation Information: With an Application to Constrained Labor Supply

This paper combines frontier functions and switching regressions. This allows economic agents to operate under different efficiency "regimes," thus relaxing the assumption that all observations are drawn from the same distribution of inefficiency. The "switch" is based on sample separation information (SSI) which is treated first as perfect, then as imperfect (or "noisy"). Available SSI suggests an observation's regime, however the information may not be accurate. By comparing results across alternative specifications of SSI as perfect and noisy, this approach provides evidence on the quality of the SSI. The technique's usefulness is demonstrated via an application to constrained labor supply.