Heterogeneity of Long‐run Technical Efficiency of German Dairy Farms: A Bayesian Approach

In parametric efficiency studies, two alternative approaches exist to provide an estimate of the long‐run efficiency of firms: the dynamic stochastic frontier model and the generalised true random‐effects model. We extend the former in order to allow for heterogeneity in the long‐run technical effic...

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Bibliographic Details
Published inJournal of agricultural economics Vol. 69; no. 1; pp. 58 - 75
Main Authors Skevas, Ioannis, Emvalomatis, Grigorios, Brümmer, Bernhard
Format Journal Article
LanguageEnglish
Published Oxford Wiley Subscription Services, Inc 01.02.2018
Subjects
Alternative approaches
Bayesian analysis
Companies
Dairy farming
Dairy farms
Data envelopment analysis
Discrepancies
dynamic stochastic frontier
Efficiency
Farm size
Farms
Heterogeneity
inefficiency persistence
long‐run technical efficiency
Stochasticity
Subsidies
Technology
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Summary:In parametric efficiency studies, two alternative approaches exist to provide an estimate of the long‐run efficiency of firms: the dynamic stochastic frontier model and the generalised true random‐effects model. We extend the former in order to allow for heterogeneity in the long‐run technical efficiency of firms. This model is based on potential differences in firm‐specific characteristics and in firms’ inefficiency persistence. The model is applied to an unbalanced micro‐panel of German dairy farms over the period 1999 to 2009. Estimation of long‐run technical efficiency and inefficiency persistence is based on an output distance function representation of the production technology and estimated in a Bayesian framework. The results suggest that heterogeneity in long‐run technical efficiency of farms is mostly attributed to discrepancies in farm‐specific factors rather than differences in farms’ inefficiency persistence. Farm size is positively related to long‐run technical efficiency while subsidies exert a negative effect on the long‐run technical efficiency of farms. Inefficiency persistence is found to be very high, but heterogeneity in this persistence is low.
Bibliography:iskevas@gwdg.de
for correspondence. Bernhard Brümmer is in the Department of Agricultural Economics and Rural Development, and the Centre of Biodiversity and Sustainable Land Use (CBL), University of Goettingen, Germany. Grigorios Emvalomatis is in the Department of Economic Studies, University of Dundee, United Kingdom. The paper has greatly benefited from the comments of Andrew (Andy) Johnson who acted as a designated discussant for a preliminary version of the paper during the 14th European Workshop on Efficiency and Productivity Analysis in Helsinki, Finland. The paper has also profited from informal talks with several participants of the workshop, and from comments by anonymous referees. Any errors or omissions are the sole responsibility of the authors.
Ioannis Skevas is in the Department of Agricultural Economics and Rural Development, University of Goettingen, Germany. E‐mail
ISSN:0021-857X
1477-9552
DOI:10.1111/1477-9552.12231