Formation and Efficient Estimation of Stochastic Frontier Production Function

Abstract

Technological change and efficiency improvement are important sources of productivity growth in any economy. The concept of technical efficiency (TE) is based on input and output relationships. Technical inefficiency arises when actual or observed output from a given input mix is less than a possible mix. The analysis of technical efficiency involves the assessment of the degree to which the production technologies are utilized.

The present investigation on “Formation and efficient estimation of stochastic frontier production functions” was carried out in the Department of Agricultural Statistics, College of Horticulture, Vellanikkara, during 2010 -13. To assess the present economics of pepper cultivation, to formulate a new stochastic frontier production function and to compare different stochastic frontier production functions. The secondary data on the area of holdings, number of vines, yield, expenses for machinery, labour, manure, and other expenses for the cultivation of the major spice pepper collected from the Department of Plantation Crops and Spices, College of Horticulture, Vellanikkara were used for the analysis.

For the stochastic frontier production model to be realistic, an exact measurement of the cost of the inputs and the realized output is extremely necessary. Very few farmers keep records of the expenditure incurred on the various inputs and rarely the output realized.

Vegetable crops have a short duration. So the farmer will be in a position to give realistic figures regarding the various inputs as also the outputs. As regards plantation crops, there will be a lag right from the establishment of the crop to the steady bearing stage. Therefore, it will be very difficult to trace back the exact cost, as no records would be available about the costs incurred. Therefore, a rapid estimation survey is the only feasibility wherein simultaneous estimation of the costs involved from the nursery through the various stages of growth can be observed.

Since a farmer who is already having a steady-bearing crop would have incurred lesser costs through the previous stages of growth of the crop, it is most feasible to use the concept of present worth to arrive at the exact costs of previous stages of the crop. The stochastic frontier analysis was done using the present value (PV) and the present cost.