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A Production Model With Firm-Specific Temporal Variation in Technical Inefficiency: With Application to Spanish Dairy Farms
Authors:Cuesta  Rafael A.
Affiliation:(1) Departamento de Economia, Universidad de Oviedo, Avenida del Cristo, s/n, Oviedo, 33006, Spain
Abstract:This paper introduces a stochastic frontier production model which accommodates firm-specific temporal variation in technical inefficiency. Unlike Cornwell, Schmidt and Sickles (1990), technical inefficiency is not modeled through the intercept of the production frontier, but through an error component model. The proposed model is a generalization of the Battese and Coelli (1992) model, which imposed a common temporal pattern upon all firms. In our application involving Spanish dairy farms, we find that the new model is preferred to the Battese and Coelli (1992) model on the basis of the likelihood ratio test. Results provide a new source of information on the different patterns of technical inefficiency change among the 82 farms in the sample.
Keywords:Time-varying technical inefficiency  stochastic production frontiers  panel data  dairy farms
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