Measurement of technical efficiency in the case of heterogeneity of technologies used between firms - Based on evidence from Polish crop farms

Abstract

In the present study, we have investigated several competing stochastic frontier models which differ in terms of the form of the production function (Cobb-Douglas or translog), inefficiency distribution (half-normal or exponential distribution) and type of prior distribution for the parameters (hierarchical or non-hierarchical from the Bayesian point of view). This last distinction corresponds to a difference between random coefficients and fixed coefficients models. Consequently, this study aims to examine to what extent inferences about estimates of farms' efficiency depend on the above assumptions. Moreover, the study intends to investigate how far the production function's characteristics are affected by the choice of the type of prior distribution for the parameters. First of all, it was found that the form of the production function does not impact the efficiency scores. Secondly, we found that measures of technical efficiency are sensitive to distributional assumptions about the inefficiency term. Finally, we have revealed that estimates of technical efficiency are reasonably robust to the prior information about the parameters of crop farms' production technology. There is also a resemblance in the elasticity of output with respect to inputs between the models considered in this paper. Additionally, the measurement of returns to scale is not sensitive to model specification.

Profit efficiency and its determinants in the agricultural sector: A Bayesian approach

“…A second issue that is insufficiently addressed in the literature on efficiency in the agricultural sector is the heterogeneity across firms. Agricultural firms have different resource endowments, for example, in their technological capabilities (Marzec and Pisulewski 2021). In this case, evaluating the efficiency in the agricultural sector when firms with different resource endowments coexist does not distinguish the specific inefficiency of a firm from heterogeneity.…”

“…The random coefficient model has been applied by some studies to evaluate technical or cost efficiency in agricultural firms, taking into account technological heterogeneity (e.g. Čechura 2010;Njuki et al 2019;Skevas 2019;Marzec and Pisulewski 2021). However, heterogeneity is not only defined by technology.…”