A Dynamic Characterization of Efficiency

The definition and measurement of dynamic economic performance has been addressed obliquely in the literature with the notions of scope economies and capacity utilization measures, but little work has focused on develop the static theory analogs of efficiency measures into the dynamic context. This paper is an attempt to identify some of the conceptual and methodological issues to be addressed. A model allowing for dynamic production decisions in the face of inefficiency is presented to illustrate some of the issues and the extensions necessary to identify truly dynamic performance measures.Agricultural and Food Policy, Production Economics,

AJAE Appendix: Dynamic Efficiency Measurement: Theory and Application

The material contained herein is supplementary to the article named in the title and published in the American Journal of Agricultural Economics, May 2007, Volume 89, Issue 2.Productivity Analysis,

Dynamic Efficiency Estimation: An Application to US Electric Utilities

The static production efficiency model and the dynamic duality model of intertemporal decision making using a parametric approach have been continuously developed but in separate direction. In this study the static shadow cost approach and the dynamic duality model of intertemporal decision making are integrated to formulate theoretical and econometric models of dynamic efficiency with intertemporal cost minimizing firm behavior. The dynamic efficiency model is empirically implemented using a panel data set of 72 U.S. major investor-owned electric utilities using fossil-fuel fired steam electric power generation during the time period of 1986 to 1999. The major results of this study are that most electric utilities in this study underutilized fuel relative to the aggregated labor and maintenance input and they overutilized capital in production. Electric utilities with relatively high technical inefficiency of variable inputs demand in production in states adopting a deregulation plan improve the performance of the utilities. The estimates of the input price elasticities present the substitution possibilities among the inputs. Finally, the results suggest evidence of increasing returns to scale in the production of the electricity industry.

Scale, productivity growth and risk response under uncertainty

SUMMARY: This study focuses on the analysis of the production behavior and risk preferences in the presence of output price uncertainty. Following a theoretical model based on the assumption of maximization of expected utility of profits, the approach used in this study infers information about risk preferences from the production characteristics of the farm. In addition, the nonparametric method of estimating elasticity of scale and technical change eliminates the need to impose a uniform production or cost functions on individual producers. The approach is applied to a panel of dairy farms, which are evaluated for their elasticity of scale and the total productivity growth components of their operations. Estimates of farmers' risk attitudes represented by individual marginal risk premiums are also related to socio-economic attributes of farmers. Overall, farm size plays an important role in explaining productivity and scale differences and has the most significant negative effect on marginal risk aversion. The magnitude of the impact of additions to the farm's dairy herd increases with scale of operations. RESUMEN: El objetivo de este trabajo es el análisis del comportamiento de la producción y en las preferencias ante el riesgo en condiciones de incertidumbre en el precio de salida. Siguiendo un modelo teórico basado en la asunción de maximización de utilidad de los beneficios, el enfoque empleado en este trabajo permite obtener información relativa a las preferencias ante el riesgo a partir de las características de la explotación. Además, el método no-paramétrico de estimación de la elasticidad de la escala y del cambio técnico elimina la necesidad de imponer una producción uniforme o funciones de precio sobre productores particulares. Este enfoque se aplica a un panel de explotaciones lecheras, que son evaluadas en función de los componentes relativos a su elasticidad de escala y al incremento total de la productividad de sus operaciones. Las estimaciones en torno a las actitudes de los productores ante el riesgo representadas por primas individuales por riesgos marginales están igualmente relacionadas con a los atributos socioeconómicos de los productores. En conjunto, el tamaño de la explotación es importante para explicar las diferencias en productividad y escala, y produce el efecto negativo más significativo sobre la aversión al riesgo marginal. La magnitud del impacto de nuevas incorporaciones de cabezas de ganado a los rebaños en explotaciones lecheras aumenta con la escala de las operaciones.Uncertainty, Risk Aversion, Productivity Growth, Productivity Analysis, Q14,

Bounded Learning Efficiency and Sources of Firm Level Productivity Growth in Colombian Food Manufacturing Industry

The measurement of productivity fluctuations has been the focus of decades-long interest. In addition to broad structural forces driving productivity changes, there is more recent interest in measuring and identifying the heterogeneous forces driving these changes. A major force is learning-by-doing which is used by economists to describe the phenomenon of productivity growth arising from the accumulation of production experience by a firm. This paper proposes a bounded learning concept with the learning progress function characterized by the degree of efficiency and the specification of the learning progress as a logistic function capturing both the slow start-up and the limit in learning progress. The inter-firm learning inefficiency is defined as the inability of a firm to reach the optimal plateau relative to the ‘best practice’ firm from the set of comparable firms. We further differentiate learning efficiency from the technical efficiency. The key contribution of this research is to provide a measure the firm’s movement along the learning progress curve and explain the existence of firm-level heterogeneity in learning. The time varying technical efficiency is estimated based on stochastic production frontier methods and firm-specific learning efficiency is disentangled using the residual of the production frontier (productivity).The model is then used to decompose the factor productivity growth into components associated with learning, scale, technical efficiency, technological change and change in allocative efficiency. This productivity growth decomposition provides useful information and policy level insight in firm-level productivity analysis. The major econometric issue in production function estimation is the possibility that there are some forces influencing production that are only observed by the firm and not by the econometrician. With firm input use being endogenous, inputs might be correlated with unobserved productivity shocks. The measure of technical efficiency by estimating the production frontier directly in presence of endogeneity of input choice can be biased in the sense that the measure of efficiency favors the firms employing higher levels of inputs. The Levinsohn and Petrin (2003) approach is extended to overcome this simultaneity problem in stochastic production frontier estimation to generate consistent estimates of production parameters and technical efficiency. The model is applied to plant-level panel data on Colombian food manufacturing sector. The dataset is unique longitudinal data on firms in the sense that it has information on both plant-specific physical quantities and prices for both outputs and inputs. In contrast to most of the existing literature which measure productivity by deflating sales by an industry-level price index, these data eliminate a common source of measurement error in production function estimation. Plant-level productivity growth decomposition and the contribution of learning effect are explored by estimating the production frontier and firm-specific learning efficiency.Colombian food manufacturing industry, Bounded learning-by-doing, Learning efficiency, Logistic differential equation, Technical efficiency, Firm-level productivity growth, Decomposition of productivity change, Endogeneity of input choice, Stochastic production frontier, Agribusiness, Industrial Organization, Production Economics, Productivity Analysis,

DOMESTIC AND TRADE POLICY FOR CENTRAL AND EAST EUROPEAN AGRICULTURE

International Relations/Trade,

DAIRY SUPPLY AND FACTOR DEMAND RESPONSE TO OUTPUT PRICE RISK: AN ECONOMETRIC ASSESSMENT

The model of production decision making for the expected utility maximizing firm under output price uncertainty is applied to a panel Pennsylvania dairy operators. The model generalized duality implemented in this paper has the advantage of generating a system of supply and variable factor demand functions that consistently account for the presence of output price risk. The application to Pennsylvania dairy operators indicates that output price risk measured by the second and third moments of individual operators' historical output price series is not an important factor in production decision making. In addition to not maximizing expected utility, these operators are not expected profit maximizers.Livestock Production/Industries,

Endogeneity corrected stochastic production frontier and technical efficiency

A major econometric issue in estimating production parameters and technical efficiency is the possibility that some forces influencing production are only observed by the firm and not by the econometrician. Not only can this misspecification lead to a biased inference on the output elasticity of inputs, but it also provides a faulty measure of technical efficiency. We extend the Levinsohn and Petrin (2003) approach and provide an estimation algorithm to overcome the problem of endogenous input choice in stochastic production frontier estimation by generating consistent estimates of production parameters and technical efficiency. We apply the proposed method to a plant-level panel dataset from the Colombian food manufacturing sector for the period 1982–1998. This dataset provides the value of output and prices charged for each product, expenditures, and prices paid for each material used, energy consumption in kilowatt per hour and energy prices, number of workers and payroll, and book values of capital stock. Empirical results find that the traditional stochastic production frontier tends to underestimate the output elasticity of capital and firm-level technical efficiency. The evidence in this research suggests that addressing the endogeneity issue matters in stochastic production frontier analysis

Escala, crecimiento en la productividad y respuesta al riesgo bajo incertidumbre

[EN] This study focuses on the analysis of the production behavior and risk preferences in the presence of output price uncertainty. Following a theoretical model based on the assumption of maximization of expected utility of profits, the approach used in this study infers information about risk preferences from the production characteristics of the farm. In addition, the nonparametric method of estimating elasticity of scale and technical change eliminates the need to impose a uniform production or cost functions on individual producers. The approach is applied to a panel of dairy farms, which are evaluated for their elasticity of scale and the total productivity growth components of their operations. Estimates of farmers' risk attitudes represented by individual marginal risk premiums are also related to socio-economic attributes of farmers. Overall, farm size plays an important role in explaining productivity and scale differences and has the most significant negative effect on marginal risk aversion. The magnitude of the impact of additions to the farm's dairy herd increases with scale of operations.[ES] El objetivo de este trabajo es el análisis del comportamiento de la producción y en las preferencias ante el riesgo en condiciones de incertidumbre en el precio de salida. Siguiendo un modelo teórico basado en la asunción de maximización de utilidad de los beneficios, el enfoque empleado en este trabajo permite obtener información relativa a las preferencias ante el riesgo a partir de las características de la explotación. Además, el método no–paramétrico de estimación de la elasticidad de la escala y del cambio técnico elimina la necesidad de imponer una producción uniforme o funciones de precio sobre productores particulares. Este enfoque se aplica a un panel de explotaciones lecheras, que son evaluadas en función de los componentes relativos a su elasticidad de escala y al incremento total de la productividad de sus operaciones. Las estimaciones en torno a las actitudes de los productores ante el riesgo representadas por primas individuales por riesgos marginales están igualmente relacionadas con a los atributos socioeconómicos de los productores. En conjunto, el tamaño de la explotación es importante para explicar las diferencias en productividad y escala, y produce el efecto negativo más significativo sobre la aversión al riesgo marginal. La magnitud del impacto de nuevas incorporaciones de cabezas de ganado a los rebaños en explotaciones lecheras aumenta con la escala de las operaciones.Hranaiova, J.; Stefanou, SE. (2002). Scale, productivity growth and risk response under uncertainty. Economía Agraria y Recursos Naturales - Agricultural and Resource Economics. 2(2):73-91. doi:10.7201/earn.2002.02.04SWORD73912