Economic efficiency in farm households: trends, explanatory factors, and estimation methods

Factors explaining differences in economic efficiency between farms are of major interest to owners, managers, and other stakeholders as they strive to improve earnings and improve the chances of firm survival. This study is undertaken to improve our understanding of interfarm differences in, and opportunities to improve, farm household efficiency in utilizing their land, labor, and capital resources to achieve household objectives. The technical, allocative, and scale efficiencies of farm households are estimated using a nonparametric, output-based data envelopment analysis (DEA) of a panel data set from 1993 to 2006. Single and double bootstrapping procedures are used to estimate technical efficiency. Initial technical efficiency assuming variable returns to scale (TEV) is estimated to be 0.83. Using single bootstrapping, the average bias-corrected TEV estimate is 0.70; using double bootstrapping, the TEV estimate is 0.72. Allocative efficiency is estimated to be 0.81. Scale efficiency is estimated to be 0.93. The only factor that is consistently associated with higher technical efficiency across analysis methods and years is larger farm size (as measured by the log of farm income). The significance of other factors changes with analysis methods.