Estimating Farm Efficiency in the Presence of Double Heteroscedasticity Using Panel Data

Journal of Applied Economics, Vol. 6, No. 2, pp. 255-268, November 2003

Posted: 2 Sep 2004

See all articles by Cherif Guermat

Cherif Guermat

Bristol Business School

Kaddour Hadri

Durham Business School

Julie M. Whittaker

University of Exeter Business School

Abstract

The accuracy of technical efficiency measures is important given the interest in such measures in policy discussions. In recent years the use of stochastic frontiers has become popular for estimating technical inefficiency, but estimated inefficiencies are sensitive to specification errors. One source of such errors is heteroscedasticity. This paper addresses this issue by extending the Hadri (1999) correction for heteroscedasticity to stochastic production frontiers and to panel data. It is argued that heteroscedasticity within an estimation can have a significant effect on results, and that correcting for heteroscedasticity yields more accurate measures of technical inefficiency. Using panel data on cereal farms, it is found that the usual technical efficiency measures used in stochastic production frontiers are significantly sensitive to the extended correction for heteroscedasticity.

Keywords: Stochastic frontier production, heteroscedasticity, technical efficiency, panel data

JEL Classification: C23, C24, D24, Q12

Suggested Citation

Guermat, Cherif and Hadri, Kaddour and Whittaker, Julie M., Estimating Farm Efficiency in the Presence of Double Heteroscedasticity Using Panel Data. Journal of Applied Economics, Vol. 6, No. 2, pp. 255-268, November 2003, Available at SSRN: https://ssrn.com/abstract=585441

Cherif Guermat (Contact Author)

Bristol Business School ( email )

Frenchay Campus
Bristol, BS16 1QY
United Kingdom

Kaddour Hadri

Durham Business School ( email )

Mill Hill Lane
Durham, Durham DH1 3LB
United Kingdom

Julie M. Whittaker

University of Exeter Business School ( email )

Streatham Court
Xfi Building, Rennes Dr.
Exeter, EX4 4JH
United Kingdom

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