A stochastic frontier production function with flexible risk properties

This paper considers a stochastic frontier production function which has additive, heteroscedastic error structure. The model allows for negative or positive marginal production risks of inputs, as originally proposed by Just and Pope (1978). The technical efficiencies of individual firms in the sample are a function of the levels of the input variables in the stochastic frontier, in addition to the technical inefficiency effects. These are two features of the model which are not exhibited by the commonly used stochastic frontiers with multiplicative error structures, An empirical application is presented using cross-sectional data on Ethiopian peasant farmers. The null hypothesis of no technical inefficiencies of production among these farmers is accepted. Further, the flexible risk models do not fit the data on peasant farmers as well as the traditional stochastic frontier model with multiplicative error structure.

A metafrontier production function for estimation of technical efficiencies and technology gaps for firms operating under different technologies

This paper presents a metafrontier production function model for firms in different groups having different technologies. The metafrontier model enables the calculation of comparable technical efficiencies for firms operating under different technologies. The model also enables the technology gaps to be estimated for firms under different technologies relative to the potential technology available to the industry as a whole. The metafrontier model is applied in the analysis of panel data on garment firms in five different regions of Indonesia, assuming that the regional stochastic frontier production function models have technical inefficiency effects with the time-varying structure proposed by Battese and Coelli ( 1992).

Lameness, metabolic and digestive disorders, and technical efficiency in Danish dairy herds: a stochastic frontier production function approach

The relationship between reported treatments of lameness, metabolic disorders (milk fever, ketosis), digestive disorders, and technical efficiency (TE) was investigated using neutral and non-neutral stochastic frontier analysis (SFA). TE is estimated relative to the stochastic frontier production function for a sample of 574 Danish dairy herds collected in 1997. Contrary to most published results, but in line with the expected negative impact of disorders on the average cow milk production, herds reporting higher frequencies of milk fever are less technically efficient. Unexpectedly, however, the opposite results were observed for lameness, ketosis, and digestive disorders. The non-neutral stochastic frontier indicated that the opposite results are due to the relative. high productivities of inputs. The productivity of the cows is also reflected by the direction of impact of herd management variables. Whereas efficient farms replace cows more frequently, enroll heifers in production at an earlier age, and have shorter calving intervals, they also report higher frequency of disorder treatments. The average estimated energy corrected milk loss per cow is 1036, 451 and 242 kg for low, medium and high efficient farms. The study demonstrates the benefit of the stochastic frontier production function involving the estimation of individual technical efficiencies to evaluate farm performance and investigate the source of inefficiency. (C) 2004 Elsevier B.V. All rights reserved.

Assessing the performance of a nucleus estate and smallholder scheme for oil palm production in West Sumatra: a stochastic frontier analysis

In this paper, we study the performance of smallholders in a nucleus estate and smallholder (NES) scheme in oil palm production schemein West Sumatra by measuring their technical efficiency using a stochastic frontier production function. Our results indicate a mean technical efficiency of 66%, which is below what we would have expected given the uniformity of the climate, soils and plantation construction among the sample farmers. The use of progressive farmers as a means of disseminating extension advice does not appear to have been successful, and more rigorous farmer selection procedures need to be put in place for similar schemes and for general agricultural extension in future. No clear relationship was established between technical efficiency and the use of female labour, suggesting there is no need to target extension services specifically at female labourers in the household. Finally, education was found to have an unexpectedly negative impact on technical efficiency, indicating that farmers with primary education may be more important than those with secondary and tertiary education as targets of development schemes and extension programs entailing non-formal education. (C) 2003 Elsevier Ltd. All rights reserved.

Relationships of Efficiency to Reproductive Disorders in Danish Milk Production: A Stochastic Frontier Analysis

Relationships of various reproductive disorders and milk production performance of Danish dairy farms were investigated. A stochastic frontier production function was estimated using data collected in 1998 from 514 Danish dairy farms. Measures of farm-level milk production efficiency relative to this production frontier were obtained, and relationships between milk production efficiency and the incidence risk of reproductive disorders were examined. There were moderate positive relationships between milk production efficiency and retained placenta, induction of estrus, uterine infections, ovarian cysts, and induction of birth. Inclusion of reproductive management variables showed that these moderate relationships disappeared, but directions of coefficients for almost all those variables remained the same. Dystocia showed a weak negative correlation with milk production efficiency. Farms that were mainly managed by young farmers had the highest average efficiency scores. The estimated milk losses due to inefficiency averaged 1142, 488, and 256 kg of energy-corrected milk per cow, respectively, for low-, medium-, and high-efficiency herds. It is concluded that the availability of younger cows, which enabled farmers to replace cows with reproductive disorders, contributed to high cow productivity in efficient farms. Thus, a high replacement rate more than compensates for the possible negative effect of reproductive disorders. The use of frontier production and efficiency/ inefficiency functions to analyze herd data may enable dairy advisors to identify inefficient herds and to simulate the effect of alternative management procedures on the individual herd's efficiency.

Estimating variable returns to scale production frontiers with alternative stochastic assumptions

Two stochastic production frontier models are formulated within the generalized production function framework popularized by Zellner and Revankar (Rev. Econ. Stud. 36 (1969) 241) and Zellner and Ryu (J. Appl. Econometrics 13 (1998) 101). This framework is convenient for parsimonious modeling of a production function with returns to scale specified as a function of output. Two alternatives for introducing the stochastic inefficiency term and the stochastic error are considered. In the first the errors are added to an equation of the form h(log y, theta) = log f (x, beta) where y denotes output, x is a vector of inputs and (theta, beta) are parameters. In the second the equation h(log y,theta) = log f(x, beta) is solved for log y to yield a solution of the form log y = g[theta, log f(x, beta)] and the errors are added to this equation. The latter alternative is novel, but it is needed to preserve the usual definition of firm efficiency. The two alternative stochastic assumptions are considered in conjunction with two returns to scale functions, making a total of four models that are considered. A Bayesian framework for estimating all four models is described. The techniques are applied to USDA state-level data on agricultural output and four inputs. Posterior distributions for all parameters, for firm efficiencies and for the efficiency rankings of firms are obtained. The sensitivity of the results to the returns to scale specification and to the stochastic specification is examined. (c) 2004 Elsevier B.V. All rights reserved.

Addressing shortcomings in the Household Responsibility System - Empirical analysis of the Two-Farmland System in Shandong Province

Despite apparent overwhelming benefits, implementation of the Household Responsibility System (HRS) in China contained a number of flaws. The Two-Farmland System (TFS), which originated in Pingdu City in Shandong Province, sought to address the twin problems of land fragmentation and economies of size. A stochastic frontier production function analysis that isolates the impacts of land allocation reforms suggests that the TFS increased efficiency by around 7%. This article highlights the need for empirical analysis to assess objectively the merits or otherwise of particular reforms. (C) 2002 Elsevier Science Inc. All rights reserved.

Drought policy: a graphical analysis

The standard approach to modelling production under uncertainty has relied on the concept of the stochastic production function. In the present paper, it is argued that a state-contingent production model is more flexible and realistic. The model is applied to the problem of drought policy.

Capital market equilibrium with moral hazard and flexible technology

(Magill, M., Quinzii, M., 2002. Capital market equilibrium with moral hazard. Journal of Mathematical Economics 38, 149-190) showed that, in a stockmarket economy with private information, the moral hazard problem may be resolved provided that a spanning overlap condition is satisfed. This result depends on the assumption that the technology is given by a stochastic production function with a single scalar input. The object of the present paper is to extend the analysis of Magill and Quinzii to the case of multiple inputs. We show that their main result extends to this general case if and only if, for each firm, the number of linearly independent combinations of securities having payoffs correlated with, but not dependent on, the firms output is equal to the number of degrees of freedom in the firm's production technology.

Why is economics not a complex systems science?

The article argues that economics will have to become a complex systems science before economists can comfortably incorporate institutionalist and evolutionary economics into mainstream theory. The article compares the complex adaptive system of John Foster with that of standard economic theory and illustrates the difference through an examination of familiar production function. The place of neoclassical, Keynesian economics in complex systems is considered. The article concludes that convincing, multiple models have been made possible by the increase in widely available computing power available.

Indirect certainty equivalents for the firm facing price and production uncertainty

Producer decisionmaking under uncertainty is characterized using indirect objective functions. The characterization is for the class of producers with continuous and nondecreasing preferences over stochastic incomes who face both price and production uncertainty. (C) 2002 Elsevier Science B.V. All rights reserved.

A state-contingent production approach to principal-agent problems with an application to point-source pollution control

Two basic representations of principal-agent relationships, the 'state-space' and 'parameterized distribution' formulations, have emerged. Although the state-space formulation appears more natural, analytical studies using this formulation have had limited success. This paper develops a state-space formulation of the moral-hazard problem using a general representation of production under uncertainty. A closed-form solution for the agency-cost problem is derived. Comparative-static results are deduced. Next we solve the principal's problem of selecting the optimal output given the agency-cost function. The analysis is applied to the problem of point-source pollution control. (C) 1998 Published by Elsevier Science S.A. All rights reserved.

Immunosuppressive effects of melanoma-derived heavy-chain ferritin are dependent on stimulation of IL-10 production

Cultured melanoma cells release soluble factors that influence immune responses. Screening of a cDNA library with anti-sera from a melanoma patient identified an immunoreactive plaque, which encoded heavy-chain ferritin (H-ferritin), Previous studies have drawn attention to the immunosuppressive effects of this molecule and prompted further studies on its biochemical and functional properties in human melanoma, These studies demonstrated, firstly, that H-ferritin appeared to be secreted by melanoma cells, as shown by immunoprecipitation of a 21.5 kDa band from supernatants. It was also detected in extracts of melanoma cells by Western blotting as 43 and 64 kDa dimers and trimers of the 21.5 kDa fraction. Secondly, flow-cytometric analysis of H- and light-chain ferritin (L-ferritin) expression on melanoma showed a wide variation in L-ferritin expression and consequently of the ratio of H- to L-ferritin expression. Suppression of mitogenic responses of lymphocytes to anti-CD3 showed a correlation with the ratio of H- to L-ferritin in the supernatants and was specific for H-ferritin, as shown by inhibition studies with a monoclonal antibody (MAb) against H-ferritin, Similar results were obtained with H- and L-ferritin from other sources. Suppression of mitogenic responses of lymphocytes to anti-CD3 by H-ferritin was inhibited using a MAb against IL-IO, which suggested that the immunosuppressive effect of H-ferritin was mediated by IL-IO, Assays of cytokine production from anti-CD3-stimulated lymphocytes showed that H-ferritin markedly increased production of IL-10 and IFN-gamma and had only slight effects on IL-2 and IL-4 production, Our results suggest that melanoma cells may be a major source of H-ferritin and that production of the latter may account for some of the immunosuppressive effects of melanoma, (C) 2001 Wiley-Liss. Inc.

Cytokine expanded myeloid precursors function as regulatory antigen presenting cells and induce tolerance through IL-10 producing regulatory T cells

The initiation of graft vs. host disease (GVHD) after stem cell transplantation is dependent on direct antigen presentation by host antigen presenting cells (APC) while the effect of indirect antigen presentation by donor APC is unknown. We have studied the role of indirect antigen presentation in allogenic responses by adding populations of cytokine-expanded donor APC to haematopoietic grafts that would otherwise induce lethal GVHD. Progenipoietin-1 (a synthetic G-CSF/Flt-3 L molecule) and G-CSF expanded myeloid DC, plasmacytoid DC and a novel granulocyte-monocyte precursor population (GM) that differentiate into class IIpos, CD80/CD86pos, CD40neg APC during GVHD. Whereas addition of plasmacytoid and myeloid donor DC augmented GVHD, GM cells induced transplant tolerance via MHC class II restricted generation of IL-10-secreting regulatory T cells. Thus a population of cytokine expanded granulocyte-monocyte precursors function as regulatory antigen presenting cells, suggesting that G-CSF derivatives may have application in disorders characterised by a loss of self-tolerance.

Il-1 beta breaks tolerance through inhibition of regulatory T cell function

IL-1 is a key proinflammatory driver of several autoimmune diseases including juvenile inflammatory arthritis, diseases with mutations in the NALP/cryopyrin complex and Crohn’s disease, and is genetically or clinically associated with many others. IL-1 is a pleiotropic proinflammatory cytokine; however the mechanisms by which increased IL-1 signaling promotes autoreactive T cell activity are not clear. Here we show that autoimmune-prone NOD and IL-1 receptor antagonist-deficient C57BL/6 mice both produce high levels of IL-1, which drives autoreactive effector cell expansion. IL-1beta drives proliferation and cytokine production by CD4+CD25+FoxP3– effector/memory T cells, attenuates CD4+CD25+FoxP3+ regulatory T cell function, and allows escape of CD4+CD25– autoreactive effectors from suppression. Thus, inflammation or constitutive overexpression of IL-1beta in a genetically predisposed host can promote autoreactive effector T cell expansion and function, which attenuates the ability of regulatory T cells to maintain tolerance to self.