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Efficiency estimation in a profit maximising model using flexible production function
Author(s) -
Kumbhakar Subal C.
Publication year - 1994
Publication title -
agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.29
H-Index - 82
eISSN - 1574-0862
pISSN - 0169-5150
DOI - 10.1111/j.1574-0862.1994.tb00297.x
Subject(s) - allocative efficiency , profit (economics) , economics , production function , production (economics) , estimation , econometrics , microeconomics , management
This paper uses a flexible (translog) production function to estimate efficiency of 227 farms from West Bengal, India. We consider estimation of technical and allocative inefficiencies using a profit maximising framework which accommodates both endogenous and exogenous inputs. The maximum likelihood method of estimation developed in this paper is based on the production function and the first‐order conditions of profit maximisation. Farm‐specific technical and allocative inefficiencies are also estimated. Empirical results show that the mean level of technical efficiency is 75.46% while the best farm is 85.87% efficient (technically). So far as allocative efficiency is concerned the majority of the farms are found to be under‐users of the endogenous inputs, viz., fertiliser, manure, human and bullock labour.