Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error
01 Jun 1977-International Economic Review (Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association)-Vol. 18, Iss: 2, pp 435-444
About: This article is published in International Economic Review.The article was published on 1977-06-01. It has received 6067 citations till now.
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TL;DR: In this paper, a stochastic frontier production function is defined for panel data on firms, in which the nonnegative technical inefficiency effects are assumed to be a function of firm-specific variables and time.
Abstract: A stochastic frontier production function is defined for panel data on firms, in which the non-negative technical inefficiency effects are assumed to be a function of firm-specific variables and time. The inefficiency effects are assumed to be independently distributed as truncations of normal distributions with constant variance, but with means which are a linear function of observable variables. This panel data model is an extension of recently proposed models for inefficiency effects in stochastic frontiers for cross-sectional data. An empirical application of the model is obtained using up to ten years of data on paddy farmers from an Indian village. The null hypotheses, that the inefficiency effects are not stochastic or do not depend on the farmer-specific variables and time of observation, are rejected for these data.
5,783 citations
TL;DR: In this paper, the expected value of u, conditional on (v − u ) is considered, where v is a normal error term representing pure randomness, and u is a non-negative error term describing technical inefficiency.
3,378 citations
TL;DR: In this paper, a coherent data-generating process (DGP) is described for nonparametric estimates of productive efficiency on environmental variables in two-stage procedures to account for exogenous factors that might affect firms’ performance.
2,915 citations
TL;DR: In this article, a stochastic frontier production function model for panel data is presented, for which the firm effects are an exponential function of time, and the best predictor for the technical efficiency of an individual firm at a particular time period is presented for this timevarying model.
Abstract: Frontier production functions are important for the prediction of technical efficiencies of individual firms in an industry. A stochastic frontier production function model for panel data is presented, for which the firm effects are an exponential function of time. The best predictor for the technical efficiency of an individual firm at a particular time period is presented for this time-varying model. An empirical example is presented using agricultural data for paddy farmers in a village in India.
2,884 citations
TL;DR: In this article, a stochastic frontier production function is defined for panel data on sample firms, such that the disturbances associated with observations for a given firm involve the differences between traditional symmetric random errors and a non-negative random variable, which is associated with the technical efficiency of the firm.
1,925 citations
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1,187 citations
TL;DR: In this article, the authors used linear programming techniques to estimate a frontier Cobb-Douglas production function for U.S. agriculture from 1960 to 1967, using the "average farm" in each state in each year as an observation.
Abstract: This article uses linear programming techniques to "estimate" a frontier Cobb-Douglas production function for U.S. agriculture from 1960 to 1967, using the "average farm" in each state in each year as an observation. Both deterministic and probabilistic frontiers are generated and the results compared with ordinary least-squares and analysis of covariance estimates of the production function. Technical inefficiency is defined relative to the probabilistic frontier function and the extent of any inefficiency calculated for each state. Little technical inefficiency exists across states when the production function includes intermediate inputs as well as land, labor, and capital.
538 citations
TL;DR: In this article, a method for estimating a frontier production function allowing economies and diseconomies of scale using linear programming techniques is presented, and three equivalent efficiency indexes are offered which measure the efficiency of alternative scale activities.
Abstract: A method is presented for estimating a frontier production function allowing economies and diseconomies of scale using linear programming techniques. The general applicability of this function is illustrated by considering the neutral and nonneutral cases. Indexes of technical, price, and economic efficiency of production of observations of equal scale are introduced. Three equivalent efficiency indexes are offered which measure the efficiency of alternative scale activities. Utilization of the efficiency indexes in determining the nature of the production function, causes of observed inefficiency, and the degree and nature of technological advance are discussed.
90 citations