Sensitivity of technical efficiency estimates to estimation approaches: an investigation using New Zealand dairy industry data

Using data from the New Zealand dairy industry for the year 1993, this paper estimates farm-specific technical efficiencies and mean technical efficiency using three different estimation techniques under both constant returns to scale and variable returns to scale in production. The approaches used are the econometric stochastic production frontier (SPF), corrected ordinary least squares (COLS) and data envelopment analysis (DEA). Mean technical efficiency of the industry is found to be sensitive to the choice of estimation technique. In general, the SPF and DEA frontiers resulted in higher mean technical efficiency estimates than the COLS production frontier.UnpublishedAfriat, P. (1972). Efficiency estimation of production functions. International Economic Review 13: 568-598. Aigner, D.J., Lovell, C. A. K. and Schmidt, P. (1977). Formulation and estimation of stochastic frontier production function models. Journal of Econometrics 6: 21-27. Battese, G. E. (1992). Frontier production functions and technical efficiency: A survey of empirical applications in agricultural economics. Agricultural Economics 7: 185-208. Battese, G. E. and Tessema, G. A. (1993). Estimation of stochastic frontier production functions with time-varying parameters and technical efficiencies using panel data from Indian villages. Agricultural Economics 9: 313-333. Bravo-Ureta, B. E. and Rieger, L. (1990). Alternative production frontier methodologies and dairy farm efficiency. Journal of Agricultural Economics 41: 215-226. Charnes, A., Cooper, W. W. and Rhodes, E. (1978). Measuring the efficiency of decision making units. European Journal of Operations Research 2: 429-444. Coelli, T. J. (1995). Recent developments in frontier modelling and efficiency measurement. Australian Journal of Agricultural Economics 39: 219-245. Coelli, T. J. (1996a). A Guide to FRONTIER Version 4.1: A Computer Program for Stochastic Frontier Production and Cost Function Estimation. CEPA Working Paper 96/07, Department of Econometrics, University of New England. Armidale. Coelli, T. J. (1996b). A Guide to DEAP Version 2.1: A Data Envelopment Analysis (Computer) Program. CEPA Working Paper 96/08, Department of Econometrics, University of New England. Armidale. Coelli, T. J. and Perelman, S. (1999). A comparison of parametric and non-parametric distance functions: With application to European railways. European Journal of Operational Research 117: 326-339. Farrell, M. J. (1957). The measurement of productive efficiency. Journal of the Royal Statistical Society A120: 253-290. Greene, W. H. (1980). Maximum likelihood estimation of econometric frontier functions. Journal of Econometrics 13: 27-56. Harris, R. I. D. (1993). Measuring efficiency in New Zealand manufacturing in 1986/87 using a frontier production function approach. New Zealand Economic Papers 27: 57-79. Jaforullah, M. (1999). A comparison of production frontier methods using Bangladesh handloom textile industry data. Economics Discussion Papers 9911, University of Otago. Dunedin, Otago. Jaforullah, M. and Devlin, N. J. (1996). Technical efficiency in the New Zealand dairy industry: A frontier production function approach. New Zealand Economic Papers 30: 1-17. Kopp, R. J. and Smith, V. K. (1980). Frontier production function estimates for steam electric generation: A comparative analysis. Southern Economic Journal 47: 1049-59. Livestock Improvement Corporation (1993). 1993 Economic Survey of Factory Supply Dairy Farmers. Statistics Section, Livestock Improvement Corporation Limited: Hamilton. Meeusen, W. and van den Broeck, J. (1977). Efficiency estimation from Cobb-Douglas production functions with composed error. International Economic Review 18: 435-444. Neff, D. L., Garcia, P. and Nelson, C. H. (1993). Technical efficiency: A comparison of production frontier methods. Journal of Agricultural Economics 44: 479-489. New Zealand Dairy Board (1996). A Survey of the New Zealand Dairy Industry. Trade Strategy Section, New Zealand Dairy Board: Wellington. Statistics New Zealand (2001). New Zealand Official Yearbook. 102nd Edition, GP Publications. Wellington. Sharma, K. R., Leung, P. and Zaleski, H. M. (1999). Technical, allocative and economic efficiencies in swine production in Hawaii: A comparison of parametric and non-parametric approaches. Agricultural Economics 20: 23-35. Wadud, A. and White, B. (2000). Farm household efficiency in Bangladesh: A comparison of stochastic frontier and DEA methods. Applied Economics 32: 1665-1673. Yin, R. (2000). Alternative measurements of productive efficiency in the global bleached softwood pulp sector. Forest Science 46: 558-569