Mismeasurement and efficiency estimates: Evidence from smallholder survey data in Africa

Abstract

AbstractSmallholder agriculture in sub‐Saharan Africa is commonly characterised by high levels of technical inefficiency. However, much of this characterisation relies on self‐reported input and production data, which are prone to systematic measurement error. We show theoretically that non‐classical measurement error introduces multiple identification challenges and sources of bias in estimating smallholders' technical inefficiency. We then empirically examine the implications of measurement error for the estimation of technical inefficiency using smallholder farm survey data from Ethiopia, Malawi, Nigeria and Tanzania. We find that measurement error in agricultural input and production data leads to a substantial upward bias in technical inefficiency estimates (by up to 85% for some farmers). Our results suggest that existing estimates of technical efficiency in sub‐Saharan Africa may be severe underestimates of smallholders' actual efficiency and what is commonly attributed to farmer inefficiency may be an artefact of mismeasurement in agricultural data. Our results raise questions about the received wisdom on African smallholders' production efficiency and prior estimates of the productivity of agricultural inputs. Improving the measurement of agricultural data can improve our understanding of smallholders' production efficiencies and improve the targeting of productivity‐enhancing technologies.