Abstract
AbstractA generalization of the dual, non‐frontier profit function approach to evaluating allocative efficiency is developed that allows for training (human capital) variables to influence the efficiency level directly. An application to Pennsylvania dairy indicates that education and experience are substitutes and play a significant role in the level of efficiency. While these operators are not allocating their variable inputs in an absolutely efficient manner, relative efficiency can be achieved for four of six possible input combinations for prescribed levels of education and experience. Furthermore, the estimates of the efficiency measures suggest that these operators are maximizing production rather than short‐run profits.
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