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.

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.

Technical inefficiency and public capital in US States: A stochastic frontier approach

This paper estimates a translog stochastic frontier production function in the analysis of all 48 contiguous U.S. states in the period 1970-1983, to attempt to measure and explain changes in technical efficiency. The model allows technical inefficiency to vary over time, and inefficiency effects to be a function of a set of explanatory variables in which the level and composition of public capital plays an important role. Results indicated that U.S. state inefficiency levels were significantly and positively correlated with the ratio of public capital to private capital. The proportion of public capital devoted to highways is negatively correlated with technical inefficiency, suggesting that not only the level but also the composition of public capital influenced state efficiency.

Cost efficiency in primary care contracting: A stochastic frontier cost function approach

The principal aim of this paper is to estimate a stochastic frontier costfunction and an inefficiency effects model in the analysis of the primaryhealth care services purchased by the public authority and supplied by 180providers in 1996 in Catalonia. The evidence from our sample does not supportthe premise that contracting out has helped improve purchasing costefficiency in primary care. Inefficient purchasing cost was observed in thecomponent of this purchasing cost explicitly included in the contract betweenpurchaser and provider. There are no observable incentives for thecontracted-out primary health care teams to minimise prescription costs, whichare not explicitly included in the present contracting system.

Land reform in NE Brazil: a stochastic frontier production efficiency evaluation

O objetivo desse artigo é caracterizar as fontes da ineficiência técnica e alocativa em um conjunto de 308 beneficiários de um programa de reforma agrária de mercado, chamado Cédula da Terra;, distribuídos em cinco estados do Nordeste brasileiro. Estudos conduzidos por Buainain et al. (2002) mostraram existem poucas diferenças entre as características de beneficiários deste programa e dos programas tradicionais de reforma agrária por expropriação e que portanto, os resultados obtidos por este trabalho permitem visualizar as dificuldades enfrentadas pelos assentamentos no Brasil. Para medir eficiência, estimou-se uma função de produção potencial segundo a metodologia de Battese e Coelli (1995) e a partir disto, procurou-se explicar as razões da ineficiência (relativa) encontrada. Os resultados apontam para a existência de ineficiência técnica e alocativa que é identificada principalmente nas situações em que a presença de produção para consumo é elevada. Tratase de um resultado que revela a pouca maturidade da maioria dos lotes dos assentados do PCT e a dificuldade de superar as limitações impostas pela condição inicial de formação dos assentamentos de reforma agrária, principalmente na região nordeste do Brasil.

A Dynamic Stochastic Frontier Production Model with Time-Varying Efficiency

In this paper we introduce technical efficiency via the intercept that evolve over time as a AR(1) process in a stochastic frontier (SF) framework in a panel data framework. Following are the distinguishing features of the model. First, the model is dynamic in nature. Second, it can separate technical inefficiency from fixed firm-specific effects which are not part of inefficiency. Third, the model allows one to estimate technical change separate from change in technical efficiency. We propose the ML method to estimate the parameters of the model. Finally, we derive expressions to calculate/predict technical inefficiency (efficiency).

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).

Explaining Economic Growth: Factor Accumulation, Total Factor Productivity Growth, and Production Efficiency Improvement

This paper examines cross-country patterns of economic growth by estimating a stochastic frontier production function for 80 developed and developing countries and decomposing output change into factor accumulation, total factor productivity growth, and production efficiency improvement. In addition, this paper incorporates the quality of inputs in analyzing output growth, where the productivity of capital depends on its average age, while the productivity of labor depends on its average level of education. Our growth decomposition involves five geographic regions - Africa, East Asian, Latin America, South Asia, and the West. Factor growth, especially capital accumulation, generally proves much more important than either the improved quality of factors or total factor productivity growth in explaining output growth. The quality of capital positively and significantly affects output growth in all groups. The quality of labor, however, only possesses a positive and significant effect on output growth in Africa, East Asia, and the West. Labor quality owns a negative and significant effect in Latin America and South Asia.

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.

Measuring and explaining farm inefficiency in a panel data set of mixed farms

This paper aims to estimate a translog stochastic frontier production function in the analysis of a panel of 150 mixed Catalan farms in the period 1989-1993, in order to attempt to measure and explain variation in technical inefficiency scores with a one-stage approach. The model uses gross value added as the output aggregate measure. Total employment, fixed capital, current assets, specific costs and overhead costs are introduced into the model as inputs. Stochasticfrontier estimates are compared with those obtained using a linear programming method using a two-stage approach. The specification of the translog stochastic frontier model appears as an appropriate representation of the data, technical change was rejected and the technical inefficiency effects were statistically significant. The mean technical efficiency in the period analyzed was estimated to be 64.0%. Farm inefficiency levels were found significantly at 5%level and positively correlated with the number of economic size units.

Why are some Spanish regions so much more efficient than others?

This article investigates the main sources of heterogeneity in regional efficiency. We estimate a translog stochastic frontier production function in the analysis of Spanish regions in the period 1964-1996, to attempt to measure and explain changes in technical efficiency. Our results confirm that regional inefficiency is significantly and positively correlated with the ratio of public capital to private capital. The proportion of service industries in the private capital, the proportion of public capital devoted to transport infrastructures, the industrial specialization, and spatial spillovers from transport infrastructures in neighbouring regions significantly contributed to improve regional efficiency.

Determinants of technical efficiency of freshwater prawn farming in southwestern Bangladesh

This paper estimates a translog stochastic production function to examine the determinants of technical efficiency of freshwater prawn farming in Bangladesh. Primary data has been collected using random sampling from 90 farmers of three villages in southwestern Bangladesh. Prawn farming displayed much variability in technical efficiency ranging from 9.50 to 99.94% with mean technical efficiency of 65%, which suggested a substantial 35% of potential output can be recovered by removing inefficiency. For a land scarce country like Bangladesh this gain could help increase income and ensure better livelihood for the farmers. Based on the translog production function specification, farmers could be made scale efficient by providing more input to produce more output. The results suggest that farmers’ education and non-farm income significantly improve efficiency whilst farmers’ training, farm distance from the water canal and involvement in fish farm associations reduces efficiency. Hence, the study proposes strategies such as less involvement in farming-related associations and raising the effective training facilities of the farmers as beneficial adjustments for reducing inefficiency. Moreover, the key policy implication of the analysis is that investment in primary education would greatly improve technical efficiency.

Agglomeration Economies in Japan: Technical Efficiency, Growth and Unemployment

This paper examines if the effects of agglomeration economies get manifested in technical efficiency and generate faster economic growth and higher (lower) levels of employment (unemployment). Using the prefecture level data for each of the two-digit groups of industries in Japan, the paper estimates region-specific technical efficiency index based on the stochastic frontier production function framework. The results of the factor analysis show that in most of the industry-groups (with a few exceptions) efficiency has a positive association with external scale variable(s). Though the relationship is not seen to be very strong, it would be equally erroneous to ignore the effect of agglomeration economies on efficiency. In the case of some of the light goods industries the agglomeration effect is relatively stronger. Further, economic growth varies positively with external scale variable(s) and unemployment rate tends to fall with respect to growth and concentration. All this tends to suggest that measures against industrial concentration may be counter-productive, particularly in the context of globalisation when countries are in dire need of raising productivity.