Stochastic Frontier Method Research Articles

Dynamics of Competitiveness and Efficiency of Rice Farming in Java Island, Indonesia

Rice is the major crop in Indonesia and the staple food for more than 90% of Indonesians. Given the vital role of rice, efforts to develop rice production are a priority, especially in solving farming efficiency problems. However, inefficiency is one of the major causes of low performance in Indonesian rice production. If farming has high competitiveness and efficiency, Indonesia is encouraged to be able to become an exporter of rice. As a result, national rice farming must continue to improve its competitiveness and efficiency. This study aims to determine the economic efficiency and competitiveness of rice farming in several provinces in Java, i.e., West Java, Central Java, and East Java. The data used in this study is PATANAS survey data obtained from the Center for Socio-Economic Studies and Agricultural Policy, Indonesian Ministry of Agriculture. This study used a quantitative analysis approach and analytical descriptive analysis. The level of competitiveness was analyzed using Policy Analysis Matrix (PAM), while the efficiency level was analyzed using the Stochastic Frontier Method (SFM). The results showed that rice farming in Java Island has a positive profit value on private and social prices. In addition, rice farming in all research locations has competitiveness as measured by indicators of comparative and competitive advantage as characterized by the coefficient values ​​of DRC (Domestic Resource Cost Ratio) and PCR (Private Cost Ratio), which are less than one in the study period 2007-2020. The result of a technical efficiency study shows the average technical efficiency of three provinces in Java is around 0.82, and the factor input that significantly increased the technical efficiency was land and intermediate input.

Analytical Derivations of New Specifications for Stochastic Frontiers with Applications

In this paper, we propose the analytical derivations of new specifications for the stochastic frontier (SF) approach. In order to avoid some limitations of the traditional SF method, we introduce dependence between the two error components through copula functions and the asymmetry of the random error assigning a generalized logistic distribution. We report the density functions of the overall error term, some important summary measures and the derivation of the efficiency scores for both cost and production frontiers. Finally, we propose two empirical applications in order to test our methodological approach: the first one refers to the estimation of production frontiers for the Italian airport system; the second one investigates the cost efficiency of the Italian banking sector.

Increasing the productivity of manufacturing firms in Cameroon in a sustainable way: Renewable or non-renewable energy?

The question of what energy form should guarantee firm productivity in the future is becoming increasingly important, considering the risk that the gradual depletion of the world’s non-renewable energy reserves poses to the continuity of productivity. This study aims to assess the effect of individual energy forms on productivity growth of manufacturing firms in Cameroon. This paper uses a two-stage stochastic frontier method to determine the energy form that is most likely to ensure the continuity of the productivity of manufacturing firms in Cameroon in the next few years. The data for the study came from the Annual Enterprise Surveys (EAE) conducted by the National Institute of Statistics of Cameroon (NIS) from 2012 to 2019. The analysis data constitute a panel of 288 representative firms. Factors that primarily explain firm productivity were value-added, renewable and non-renewable energy, capital, labor, and raw materials. The study analyzed the entire manufacturing industry, agri-food sector, and other manufacturing industries. Despite being a group estimate, individual firms are taken into account. Across the manufacturing industry in Cameroon, the results indicate that renewable energy is the most advantageous form. Indeed, this form would cause a 9.27% increase in productivity for a one percentage point increase. However, as the impact coefficients are insignificant, it is difficult to assess the contribution of non-renewable energy to firm productivity. Acknowledgments The authors would like to sincerely thank Atanase Yene for his invaluable support in this work, helpful comments, and suggestions on the previous draft of this paper. The usual disclaimer applies, and views are the authors’ sole responsibility.

Pengaruh Kemitraan Terhadap Efisiensi dan Risiko Usahatani Bawang Merah di Provinsi Jawa Tengah

Productivity of shallot in central Java as an area production center has a declining trend from 2013-to 2018. One way to increase productivity is through technical efficiency. However, to increase productivity, the probability of production risk will also be higher. Contract farming is one way to increase productivity and overcome production risks in shallot farming. The objectives of this study were to analyze the effect of contract farming on technical efficiency and perception of risks production between contract and non-contract farmers. Secondary data was used in this study. The research sample consisted of 1.508 (10 contract farmers and 1.498 non-contract farmers) shallot farmers in Central Java. The data were analyzed using the stochastic frontier method to see technical efficiency, and the Likert scale to see farmers' perceptions of production risk. The analysis shows that contract farming affected decreasing efficiency. Meanwhile, there is no difference between both farmers in perceptions of the risk of pest and disease attacks. Meanwhile, contract farmers’ perception of the risk of climate change was greater in decreasing production than non-contract farmers. Management efforts by both contract and non-contract farmers to overcome pests and plant diseases are no different. They both prefer chemical methods to overcome pest and disease plant attacks.

Assessing production efficiency by farm size in Rwanda: A zero-inefficiency stochastic frontier approach

This study investigates the relationship between farm size and technical efficiency for the production of maize in Rwanda. Since levels of technical efficiency tend to vary considerably across farms in sub-Saharan Africa, with a mixture of both inefficient and fully efficient farms, the use of the conventional stochastic frontier method is not appropriate. In this paper, we apply a zero-inefficiency stochastic frontier method that manages both efficiency and inefficiency in the studied sample. The average technical efficiency of maize farms for the full sample is estimated at 0.64, demonstrating that maize output can be improved by approximately 36% without increasing the proportion of farm inputs used. Regarding the relationship between farm size and technical efficiency, the study results show a positive relationship between farm size and technical efficiency for maize production in Rwanda. Thus, the enforcement of land reforms such as land consolidation and enhanced aggregate productivity growth is needed. The results also indicate that education, cooperative membership, extension services, access to credit, off-farm income, land tenure, and livestock ownership have significant and positive effects on technical efficiency.

A technical efficiency analysis of intra-central bank settlement mechanism in Eurozone

ABSTRACT This work employs the stochastic frontier method to explore the efficiency of the TARGET2 (T2) balances mechanism across the Eurozone countries. An index is introduced to support the estimation strategy and derives meaningful results from better capturing the mechanism’s efficiency. The analysis spans the period 2005–2017 and documents the significant role or inefficiencies influencing the role of T2 from unemployment and labor costs. The absence of T2 would have endangered the viability of the Eurozone to promote trade. There is enormous country heterogeneity on efficiency and inefficiency of the error terms in our model, which indicate persistent structural issues and temporary issues; to ensure its uninterrupted operation, the enhancement of the export orientation of the manufacturing base of countries with the least efficiency (high unemployment and labor costs) is essential.

Technical Efficiency and Output Losses in Shrimp Farming: A Case in Mekong Delta, Vietnam

The conversion from black tiger shrimp farming and crop farming to white leg shrimp production is widespread in Vietnam’s Mekong Delta provinces. However, this conversion trend also contains many risks related to the technical aspects of the production process. The study mainly aims to estimate the technical efficiency of white leg shrimp farming. It also compares the technical efficiency of white leg shrimp farming between the traditional group that historically has cultivated white leg shrimp and the group that recently converted from black tiger shrimp and crops to white leg shrimp, in order to evaluate the efficiency and adaptability of shrimp farming. Primary data were collected by directly interviewing 99 farmers in traditional areas and 101 farmers in recently converted areas in the study sites and analyzed by using the stochastic frontier method. The calculated technical efficiency was around 72.9 percent, suggesting that farmers could increase their output level by about 27.1%, given constant inputs. There was no difference in the technical efficiency of the two groups, indicating that the converted farms have sufficient adaptability when switching to white leg shrimp farming. The output loss in farmers’ production is still very high, with an average loss of 1973 kg/hectare.

Technical efficiency of the food and drink industry and its determinants

This study focuses on evaluating the technical efficiency (TE) of food and drink companies in the Czech Republic and on finding its determinants. The analysis is based on the data of 597 firms and uses the stochastic frontier method. We have identified the key players in the market and the less effective groups of processors. Foreign-owned companies have a strong position because of a better economy, but the results showed that their efficiency is comparable with that of Czech-owned companies. The results helped confirm that the size of the company influences its TE. The lowest efficiency was observed in small companies. TE also differed among branches of the food industry. The highest efficiency was in the bakery and milk industries, and the lowest efficiency was in fruit and vegetable processing. Subsidised firms reached a significantly higher efficiency. With respect to economic results, there is still a need to improve competitiveness through investments.

Research on the Impact of Logistics Industry Efficiency and Agglomeration Effect on Import and Export Trade in Korea

Purpose – The logistics industry is often featured by its location relevance and industrial concentration. Industrial concentration is conducive to the effective transmission of information by reducing transaction costs and improving transaction efficiency, thus promoting the development of trade. The main purpose of this paper is to measure the spatial total factor productivity and location quotient of the logistics industry in Korea, and to study the impact of the logistics industry efficiency and agglomeration effect on import and export trade in Korea. Design/methodology – First, used the spatial stochastic frontier method to measure the spatial total factor productivity of the logistics industry in Korea, this serves as the efficiency index of the logistics industry in various regions of Korea. Second, calculated the location quotient (LQ) of the logistics industry to measure the industry’s concentration degree. Third, employed a spatial econometric model to analyze the impacts of factors such as the efficiency and concentration levels of the logistics industry on import and export trade in Korea. Findings – This study’s main findings can be summarized as follows: this study found that the overall efficiency of the logistics industry in Korea needs to be improved, even though it showed an upward trend in all regions of the country; Moreover, the agglomeration level of Korea’s logistics industry needs to be improved; Finally, the positive spatial correlation and industrial agglomeration effect of Korea s logistics industry had a positive impact on the country’s import and export trade. Originality/value – This study is innovative in terms of research perspective and methods. Most of the previous studies have measured the development level of the logistics industry using the logistics performance index (LPI), Fewer studies have assessed through the spatial total factor productivity and location quotient of the logistics industry in Korea to measure the efficiency index of the logistics industry in various regions of Korea and concentration degree, as well as there was almost no study on the impact of logistics industry efficiency and agglomeration effect on import and export trade in Korea. This study addresses this limitation by analyzing the impacts of the efficiency and agglomeration effect of the logistics industry on import and export trade in Korea.

Measuring the economic abatement cost of sea turtle bycatch in the Northwest Atlantic commercial pelagic longline fishery

This study estimates the economic cost of reducing the take of sea turtles in the U.S. Northwest Atlantic Commercial Pelagic Longline Fishery. Sea turtles are protected under the Endangered Species Act. The analysis uses an output-oriented stochastic distance frontier method and draws from a highly unbalanced trip-level panel dataset that had 60 unique vessels that fished between 2006 and 2016. Our results show that mitigating the take of sea turtles is costly. On average, the cost of reducing the take of one sea turtle (or shadow price) equals $36,957. Shadow prices show significant temporal variability and vary by the targeting behavior of the fleets (i.e., tuna vs. swordfish trips). We also find that the technical efficiency of the fishing fleets varies by its targeting behavior. We conclude discussing bycatch management insights from our research.

Sustainable Provision of School Buildings in The Netherlands: An Empirical Productivity Analysis of Local Government School Building Operations

Building operations and construction are responsible for a large part of global energy use and carbon dioxide emissions. In this paper, we present an analysis of the efficiency and productivity of the provision of school buildings by Dutch municipalities. A cost function is estimated for the years 2005–2016 using stochastic frontier methods based on data of Dutch municipalities. The results indicate that inefficiency and unproductiveness are substantial. The provision of school buildings on a more appropriate scale, detailed performance benchmarking and including more incentives for innovative behaviour may result in a more sustainable provision of school buildings and less energy use and emission of carbon dioxide.

Production environment and managerial techniques in explaining productivity growth in Brazilian beef cattle production

AbstractBrazil is a key player in the global beef markets having generated 15% of global production, and approximately 20% of world exports in 2018. Productivity improvements will be indispensable if the Brazilian beef sector wants to maintain its position as a key player in both the domestic and international markets. In light of the aforementioned, this study makes two key contributions to the agricultural productivity literature on Brazil. First, it estimates the production technology used in the Brazilian beef cattle sector using stochastic production frontier methods that account for exogenous factors that impact the production environment. Second, using the estimated coefficients as weights, it decomposes a total factor productivity (TFP) index that tracks various sources of productivity growth including: technical efficiency, technological change, scale efficiency, and environmental efficiency. By utilizing farm‐level data this study generates deeper insights into the dynamics driving beef cattle production at the most disaggregated level. Results indicate that TFP growth averaged 1.73% per annum and was primarily driven by scale efficiency, which increased at 1.39%. Meanwhile, technical efficiency declined at a rate of −0.03% per annum. [EconLit Citations: D24, O13, Q15].

Efficiency in university-industry collaboration: an analysis of UK higher education institutions

We examine the determinants of university involvement in knowledge transfer activities, focusing on the value of external services provided by higher education institutions. Data come from 164 universities in the UK and are drawn from the HE Business and Community Interaction Survey (HE-BCI), with a variety of university- and region- specific explanatory variables grafted onto the data from other official sources. The production function for such external services is estimated using the appropriate stochastic frontier methods, and unobserved heterogeneity across institutions of higher education is accommodated by adopting a latent class framework for the modelling. We find strong effects of scale and of research orientation on the level of knowledge transfer. There are, however, two distinct latent classes of higher education institutions, and these differ especially in terms of how external service provision responds to subject specialization of universities and to economic conditions in the region. Research-intensive universities are concentrated in one of the latent classes and, in these institutions, the provision of external services appears to be highly efficient, while in the second latent class there is greater variation in the efficiency of universities.

Energy efficiency and financial depth nexus revisited: does the choice of instrumental variable and measure of financial depth matter?

This study examines the effect of finance on energy efficiency in Africa, addressing two fundamental empirical issues in the energy-finance literature: (1) simultaneous modelling of efficiency estimates and determinants of efficiency and (2) two-way endogeneity problem with income and financial depth. I apply the endogenous stochastic frontier method. Life expectancy at birth instruments for income while religion, latitude of capital city and legal system origin instrument for financial depth. Estimated efficiency in electricity consumption is between 9 and 16%, which is quite low, suggesting greater potential to improve electricity consumption efficiency. Without considering the level of development, the result shows that finding a statistically significant negative effect of financial depth on energy inefficiency depends on the choice of instrument and not the indicator of financial depth. Using country latitude and legal system origin as instruments produce robust statistically significant negative effect for all the indicators of financial depth, but high monetisation of the economy and supply of loanable funds exert the greatest effect, recommending between 0.069 and 0.096% reduction in inefficiency for every 1% increase in these indicators. However, both the choice of instruments and indicator of financial depth matter, when I consider income level. I discuss the policy implications.

Land Tenure and Technical Efficiency of Smallholder Tea Producers: The Case of Ya’An City, China

70 percent of the world and 80 percent of China’s tea production produced by smallholder farmers. However, the tea production per unit area significantly unchanged in the past decades. Understanding factors affecting the technical efficiency of smallholder tea producers is very important to maximize tea production. Aimed at examining the impact of land tenure security and land certification on smallholder tea producers’ technical efficiency, this paper employs the Cobb- Douglas Stochastic Production Frontier (CD-SPF) and Translog Stochastic Production Frontier (TL- SPF) methods for Maximum Likelihood Estimate (MLE) with cross-sectional data collected from 161 randomly selected tea farm plot households in Ya’an city, China. We found that an 1 mu (0.067 ha) increase in the tea farm size will produce a 1.086 tea yield advantage for smallholder tea farmers. We also found that the values of input-output elasticity of land size, household income and labor decrease in turn with 0.144, 0.105 and 0.010 respectively. The results show that farm size is a more crucial input for tea production than income and labor. Moreover, we identify the determinations which enhance the technical efficiency of smallholder tea producers such as land certification, land tenure security age, education, farming experience, total farm size holding, chemical fertilizer, plot steepness and plot distance from home and find that the elimination of land tenure insecurity through land registration and certification makes a clear difference in that. We therefore recommend that tea farmland need to expand and enlarge for better production through comprehensive land consolidation program. We also suggest endorsing the land certificates of all land holders as this will help improve land tenure security, enhance technical efficiency and promote the tea production of smallholder producers.

Analisi Efisiensi Teknis, Alokatif dan Ekonomi Produksi Kubis di Kabupaten Karo

The productivity level of cabbage farming in North Sumatra Province is low compared to other provinces on the island of Sumatra, where Karo Regency represents the general condition in North Sumatra Province. This study aims to estimate the level of technical, allocative, economic efficiency and the factors that affect the technical inefficiency of cabbage farming. The production function uses the Cobb-Douglas production function. Data analysis used the stochastic frontier method with a total sample of 116 farmers. The results of the analysis showed that cabbage farming in Karo District had not achieved technical, allocative and economic efficiency. The average technical, allocative and economic efficiency values of the respondent farmers were 0,697, 0,374 and 0,215. These results indicate that low efficiency is a contributing factor to the low productivity of farmer respondents' cabbage in Karo District. Factors that have a significant effect on efficiency are farming experience, labor ratio, land ownership status and cabbage harvest age. Based on the estimation results, the research policy suggestions include; increase farmer activeness to be involved in farmer groups, build and facilitate the growth and development of agricultural institutions and provide good seeding training so that farmers have good skills, thus improving the technical efficiency of cabbage farming in Karo District.

Job Satisfaction and Implications for Organizational Sustainability: A Resource Efficiency Perspective

This study contributes to the organizational sustainability literature by exploring a methodology for defining and making the notion of employee flourishing at work operational. It applies stochastic frontier methods on British longitudinal data to estimate the maximum job satisfaction that employees can achieve should they utilize their resources efficiently. It offers a new perspective on the notion of social comparisons and extends the literature by demonstrating the scope for organizational intervention in the context of commonly assumed, time invariant variables, which are often thought to be beyond interventionist possibilities. Findings suggest that many British employees fail to reach their job satisfaction potential, reporting satisfaction scores below those of their peers with similar resource endowments. This inefficiency correlates strongly with personality traits. Implications for organizational sustainability policy and practice are discussed.

Spatial-temporal characteristics of industrial land use efficiency in provincial China based on a stochastic frontier production function approach

Improving industrial land use efficiency is of great significance for sustainable industrial development. This paper measures the industrial land use efficiency (ILUE) in China, and explores its spatial-temporal characteristics and influencing factors by using a stochastic frontier analysis (SFA) method. A translog SFA model that characterizes the relationship between industrial land productivity and land input level is established to estimate the efficiency. The estimation results of the SFA model and related tests both show that the stochastic frontier method for ILUE measurement is suitable, and the contribution rate of technical inefficiency term to the mixed error reaches 66.9%. ILUE levels in China show an increasing trend from 2004 to 2017. The average efficiency in the east is the highest. ILUE in the west gradually surpassed that in the northeast in recent years. Reduction of the inter-group difference greatly contributed to the decrease in overall difference, but it is still the main source of overall difference. Results of the inefficiency function show that enterprise ownership structure produces negative impact on ILUE. The specialization of high-tech manufacturing industry, urbanization level and transportation condition have positive influence on ILUE, while the specialization of the chemical and rubber industry and the local financial pressure exert negative effects. Based on these, some policy recommendations for ILUE improvement are further proposed.

Participation in farmers' organization and production efficiency: empirical evidence from smallholder farmers in Bangladesh

PurposeFarmer organizations (FOs) can elevate many of the production- and marketing-related challenges by ensuring access to technology, farming information and loan for inputs and mechanization. This study assesses the major factors that affect the participation in FOs by the smallholder rice farmers in Bangladesh and evaluates the impacts of the participation on rice yield and production efficiency.Design/methodology/approachThe present study used primary data collected from 1,000 smallholder rice farmers in northwest Bangladesh, consisting of 250 farmers those participated in an organization. This study utilized a sample selection stochastic production frontier (SPF) method, a combination of the conventional SPF and the Heckman's sample selection model, to control for biases stemming from observed and unobserved attributes.FindingsThis study demonstrates that participation in an organization is significantly affected by smallholder rice farmers' education, occupation, family size, household income, land ownership and the location where they reside. At the same time, the participation status affects the productivity of smallholder farmers. Findings indicate that farmers who participated in an organization had higher rice yield (11% more) and were technically more efficient (1.4 percentage points higher) compared to farmers who did not participate.Research limitations/implicationsSince this study was carried out with representative sampled farmers from northwest Bangladesh, the findings may not represent all farmers' perceptions of FOs in the country.Originality/valueEven though more than 200,000 FOs are currently in operation, knowledge regarding the effectiveness of Bangladesh's FOs is limited. Notably, this study used a relatively new method, sample selection SPF model, to investigate the impact of FOs on the production efficiency of smallholder rice farmers in northwest Bangladesh. Therefore, this study contributes to the literature in elucidating the factors affecting participation in FOs and its impact on rice yield and efficiency. Since FOs have been somewhat ineffective in their role as service providers in Bangladesh, this study’s results will guide policymakers to intervene more successfully regarding the changes needed.

Spatial analysis of factors affecting fertilizer use efficiency in China: an empirical study based on geographical weighted regression model.

Improving fertilizer use efficiency (FUE) is an effective means to reduce fertilizer use and environmental contamination. Few studies have considered spatial effects of FUE and its determinants. This paper calculates the FUE of agricultural production by adopting panel data on 31 provinces in China from 2007 to 2017 using a stochastic frontier method and discusses the spatial distribution and characteristics. Furthermore, the geographical weighted regression (GWR) model is employed to examine the spatial impact of education level, non-agricultural employment ratio, disaster ratio, and farmers' income on FUE and reveal the spatial dispersion and agglomeration effect of different provinces in 2007, 2010, 2013, 2015, and 2017. The results show that the average FUE in China is 0.747 and has a significant decreasing trend, and FUE has a significant regional difference and spatial positive correlation in different provinces. Non-agricultural employment ratio is the most leading factor for increasing FUE for all provinces in studied years, and its influence degree shows a decreasing trend from southeastern to northwestern in each year. The different agricultural industry development modes, planting structure adjustment, and policy incentive systems for increasing non-agricultural employment ratio should be developed for different regions. Farmers' income has a significant negative impact on FUE, but the influence degree decreases annually, indicating that improving income to higher than turning point of the environmental Kuznets curve plays a critical role in improving FUE. The influence of education level on FUE is positive but relatively weak, and the influence degree declines from the western to eastern areas. It should strengthen the exploration of scientific and rational education and a training policy system to improve the educational level in different regions on the basis of local characteristics. Disaster ratio has a positive impact on FUE but is unstable. For the neighboring provinces, coordinated weather and possible disaster forecasting and release mechanism should be carried out based on the extent of the disaster.