Estimation of Firm-Varying, Input-Specific Efficiencies in Dairy Production

Firm-varying production technologies were estimated using random coefficients regression methods for a sample of Massachusetts dairy farms. Results were compared to OLS Cobb-Douglas production function estimates. The random coefficients regression model was found to virtually eliminate conventionally measured firm technical inefficiencies by estimating individual firm technologies and ascribing remaining inefficiencies to specific inputs. Input-specific measures of firm inefficiencies showed hired labor, land, and machinery inputs to be used in excess of efficient levels. Livestock supplies were underutilized by all farms. Efficiencies of feed, crop materials, fuels, and utilities varied, although estimated means were closer to optimal levels Measurement of economic efficiency has been an important area of empirical research in production economics. During the last decade, several studies have been conducted to measure efficiency of Northeast dairy production (e.g., Bravo-Ureta and Rieger; Tauer and Belbase; Grisley and Mascaren-has). Development of neoclassical economic the-ory has provided means for identifying technical and allocative efficiencies. Technical efficiency typically is measured using estimated production functions; deviations from the frontier are assumed to represent technical inefficiencies, Econometric estimation methods have progressed from cor-rected least squares methods (Greene) to the sto-chastic frontier, composed error model used in re-cent studies (e.g., Bravo-Ureta and Riege ~ Daw-son and White). Inasmuch as output and input prices are rarely available in cross-sectional firm-level data, empirical measurement of allocative ef-ficiency is seldom conducted. * Studies that do es