EXOGENOUS PRODUCTION SHOCKS AND TECHNICAL EFFICIENCY AMONG TRADITIONAL IVORIEN RICE FARMERS

This paper uses a unique panel data set and data envelopment analysis (DEA) to obtain estimates of technical efficiency for 492 traditional rice plots in Côte d'Ivoire. The objective of this paper is to explore the importance of explicitly controlling for exogenous shocks to production in technical efficiency estimation. We show how omission of such variables in highly stochastic production environments can lead to serious inferential errors, with potentially significant policy implications. Conventional DEA estimation of a production frontier, followed by second-stage Tobit estimation of the correlates of plot- level technical efficiency, suggest widespread and substantial inefficiency related to crop fragmentation and seed varieties. However, when one controls for unobserved groupwise cross-sectional and intertemporal heterogeneity and introduces measurable exogenous shocks into the second-stage estimation, managerial characteristics become jointly insignificant and state-conditional technical efficiency becomes nearly universal. The implication is that conventional technical efficiency estimates that refute the classic Schultzian "poor but efficient" hypothesis may be incorrect because they ignore farmers' vulnerability to adverse states of nature against which they cannot insure.Africa (Sub-Saharan), Ivory Coast, production frontiers, agricultural productivity, rice., Crop Production/Industries, Productivity Analysis, O12, Q12, D2,

MACROECONOMIC SHOCKS, HUMAN CAPITAL AND PRODUCTIVE EFFICIENCY: EVIDENCE FROM WEST AFRICAN FARMERS

Little empirical work has quantified the transitory effects of macroeconomic shocks on farm-level production behavior. We develop a simple analytical model to explain how macroeconomic shocks might temporarily divert managerial attention, thereby affecting farm-level productivity, but perhaps to different degrees and for different durations across production units. We then successfully test hypotheses from that model using panel data bracketing massive currency devaluation in the west African nation of Cote d'Ivoire. We find a transitory increase in mean plot-level technical inefficiency among Ivorien rice producers and considerable variation in the magnitude and persistence of this effect, attributable largely to ex ante complexity of operations, and the educational attainment and off-farm employment status of the plot manager.Labor and Human Capital, O1, Q12, Q18,

Making Sense of the Subprime Crisis

This paper explores the question of whether market participants could have or should have anticipated the large increase in foreclosures that occurred in 2007 and 2008. Most of these foreclosures stem from loans originated in 2005 and 2006, leading many to suspect that lenders originated a large volume of extremely risky loans during this period. However, the authors show that while loans originated in this period did carry extra risk factors, particularly increased leverage, underwriting standards alone cannot explain the dramatic rise in foreclosures. Focusing on the role of house prices, the authors ask whether market participants underestimated the likelihood of a fall in house prices or the sensitivity of foreclosures to house prices. The authors show that, given available data, market participants should have been able to understand that a significant fall in prices would cause a large increase in foreclosures, although loan]level (as opposed to ownership]level) models would have predicted a smaller rise than actually occurred. Examining analyst reports and other contemporary discussions of the mortgage market to see what market participants thought would happen, the authors find that analysts, on the whole, understood that a fall in prices would have disastrous consequences for the market but assigned a low probability to such an outcome

SMALLHOLDER TECHNICAL EFFICIENCY WITH STOCHASTIC EXOGENOUS PRODUCTION CONDITIONS

WP 1998-15 December 1998JEL Classification Codes: 012; Q12; D2There is a large literature on the estimation of frontier production functions, much of it applied to low-income agriculture. However, much of this literature largely ignores nature's role in agricultural production. Because exogenous, natural production conditions (e.g., rainfall, soil quality, pest infestation, plant disease, weed growth) are rarely uniform or symmetrically distributed within a population or a sample thereof, this omission generally leads to downward bias in producers' estimated efficiency and to biased estimates of both the parameters of the production frontier and the correlates of true technical inefficiency. Using panel data from 464 traditional rice plots in Cote d'Ivoire, we show that controlling for stochastic, exogenous, natural production conditions in estimating the production frontier significantly increases smallholder rice farmers' estimated efficiency, whether estimated using parametric, stochastic or nonparametric, nonstochastic methods. The resulting frontier parameter estimates are also more consistent with theoretical predictions than are those of a frontier estimated without controlling for exogenous production conditions. Conventional estimates of technical efficiency may then mislead policymakers' perceptions of overall efficiency levels and of the sources of such inefficiency

Macroeconomic shocks, human capital and productive efficiency: Evidence from West African farmers

WP 2003-18 May 2003Little empirical work has quantified the transitory effects of macroeconomic shocks on farm-level production behavior. We develop a simple analytical model to explain how macroeconomic shocks might temporarily divert managerial attention, thereby affecting farm-level productivity, but perhaps to different degrees and for different durations across production units. We then successfully test hypotheses from that model using panel data bracketing massive currency devaluation in the west African nation of Cote d'Ivoire. We find a transitory increase in mean plot-level technical inefficiency among Ivorien rice producers and considerable variation in the magnitude and persistence of this effect, attributable largely to ex ante complexity of operations, and the educational attainment and off-farm employment status of the plot manager

EXOGENOUS PRODUCTION SHOCKS AND TECHNICAL EFFICIENCY AMONG TRADITIONAL IVORIEN RICE FARMERS

This paper uses a unique panel data set and data envelopment analysis (DEA) to obtain estimates of technical efficiency for 492 traditional rice plots in Côte d'Ivoire. The objective of this paper is to explore the importance of explicitly controlling for exogenous shocks to production in technical efficiency estimation. We show how omission of such variables in highly stochastic production environments can lead to serious inferential errors, with potentially significant policy implications. Conventional DEA estimation of a production frontier, followed by second-stage Tobit estimation of the correlates of plot- level technical efficiency, suggest widespread and substantial inefficiency related to crop fragmentation and seed varieties. However, when one controls for unobserved groupwise cross-sectional and intertemporal heterogeneity and introduces measurable exogenous shocks into the second-stage estimation, managerial characteristics become jointly insignificant and state-conditional technical efficiency becomes nearly universal. The implication is that conventional technical efficiency estimates that refute the classic Schultzian "poor but efficient" hypothesis may be incorrect because they ignore farmers' vulnerability to adverse states of nature against which they cannot insure

MACROECONOMIC SHOCKS, HUMAN CAPITAL AND PRODUCTIVE EFFICIENCY: EVIDENCE FROM WEST AFRICAN FARMERS

Little empirical work has quantified the transitory effects of macroeconomic shocks on farm-level production behavior. We develop a simple analytical model to explain how macroeconomic shocks might temporarily divert managerial attention, thereby affecting farm-level productivity, but perhaps to different degrees and for different durations across production units. We then successfully test hypotheses from that model using panel data bracketing massive currency devaluation in the west African nation of Cote d'Ivoire. We find a transitory increase in mean plot-level technical inefficiency among Ivorien rice producers and considerable variation in the magnitude and persistence of this effect, attributable largely to ex ante complexity of operations, and the educational attainment and off-farm employment status of the plot manager

SMALLHOLDER TECHNICAL EFFICIENCY WITH STOCHASTIC EXOGENOUS PRODUCTION CONDITIONS

There is a large literature on the estimation of frontier production functions, much of it applied to low-income agriculture. However, much of this literature largely ignores nature's role in agricultural production. Because exogenous, natural production conditions (e.g., rainfall, soil quality, pest infestation, plant disease, weed growth) are rarely uniform or symmetrically distributed within a population or a sample thereof, this omission generally leads to downward bias in producers' estimated efficiency and to biased estimates of both the parameters of the production frontier and the correlates of true technical inefficiency. Using panel data from 464 traditional rice plots in Cote d'Ivoire, we show that controlling for stochastic, exogenous, natural production conditions in estimating the production frontier significantly increases smallholder rice farmers' estimated efficiency, whether estimated using parametric, stochastic or nonparametric, nonstochastic methods. The resulting frontier parameter estimates are also more consistent with theoretical predictions than are those of a frontier estimated without controlling for exogenous production conditions. Conventional estimates of technical efficiency may then mislead policymakers' perceptions of overall efficiency levels and of the sources of such inefficiency