Translog Frontier Research Articles

Measurement of cost inefficiency with safety first measure of risk

The objectives of this paper are to incorporate a measure of risk aversion in the translog frontier cost function to estimate cost inefficiency. Risk-averse behaviour of farmers is hypothesised to reduce efficiency by leading to a situation in which the marginal value product of an input is less than price. In developing agriculture, farmers are aware of their subsistence needs and seek to minimize the probability of their incomes falling below a disaster level of income. Using such a safety first principle, a measure of risk-taking is developed and explained by socio-economic characteristics. This measure is used in the translog cost function as a fixed input and, using the frontier approach (with half normal distribution of inefficiency disturbance), a measure of cost inefficiency is obtained. This is related to socio-economic characteristics such as education, assets and holding size. A survey data of 436 farmers for the North-West Frontier Province of Pakistan is used to reach policy conclusions for reducing cost inefficiency.

Measurement of cost inefficiency with safety first measure of risk

AbstractThe objectives of this paper are to incorporate a measure of risk aversion in the translog frontier cost function to estimate cost inefficiency. Risk‐averse behaviour of farmers is hypothesised to reduce efficiency by leading to a situation in which the marginal value product of an input is less than price. In developing agriculture, farmers are aware of their subsistence needs and seek to minimize the probability of their incomes falling below a disaster level of income. Using such a safety first principle, a measure of risk‐taking is developed and explained by socio‐economic characteristics. This measure is used in the translog cost function as a fixed input and, using the frontier approach (with half normal distribution of inefficiency disturbance), a measure of cost inefficiency is obtained. This is related to socio‐economic characteristics such as education, assets and holding size. A survey data of 436 farmers for the North‐West Frontier Province of Pakistan is used to reach policy conclusions for reducing cost inefficiency.

MEASUREMENT OF TECHNICAL EFFICIENCY IN THE NORTH‐WEST FRONTIER PROVINCE OF PAKISTAN

The objective of this study is to measure technical efficiency, using a translog frontier production function on cross‐sectional data from 397 farms in the North‐West Frontier Province of Pakistan in 1988–89. The estimated farm level technical efficiency is found to be dependent upon levels of credit and education, farmers' ages and the extent of land fragmentation. Lack of education, restricted credit and fragmented holdings are found to be causes of inefficiency; hence policies which consolidate holdings, provide credit or educate farmers will tend to improve efficiency in agriculture.

Firm size and technical efficiency: Applications of production frontiers to Indian survey data

This paper is an empirical investigation of the relationship between relative technical efficiency and firm size in four Indian manufacturing industries. A frontier translog production function is used to derive measures of technical inefficiency at the enterprise level. Given the properties of the estimated production frontier these indices of technical efficiency are also indices of total factor productivity (TFP) which is the single most widely accepted measure of productive efficiency. Variations in technical efficiency are correlated with several explanatory variables, including size of firm. Firm size is found to be positively associated with relative productive efficiency in only one of the four industries.

The Impact of Subsidies on X-Efficiency in LDC Industry: Theory and an Empirical Test

THE X-inefficiency costs of protection and industrial concentration have been topics of considerable interest in the literature on economic development. Balassa (1975) and Bergsman (1974), for example, have argued that protection, by increasing X-inefficiency, generates a major welfare cost which is not captured by traditional costs of protection calculations, and White (1976) has examined the relationship between inappropriate factor intensities which he associates with Xinefficiency and industrial concentration. The common theme which emerges from each of these studies is that public policy can have a major impact on economic performance not only by influencing factor proportions, but also by influencing the intensity with which a non-measurable input, X-efficiency, is employed. Despite the intuitive appeal of the X-efficiency concept there have been very few empirical tests of this hypothesis. This partly reflects the imprecise nature of the basic concept but also the lack of adequate micro economic data. X-efficiency clearly relates to efficiency within firms so that the most appropriate tests would rely on data on firm-level efficiency. In this paper we propose a direct test of the X-efficiency hypothesis using firm-level data. We build on previous work by Corden (1970, 1974) and Martin (1978) who showed how to model X-efficiency effects using the concept of managerial leisure. We extend these simple models of managerial behavior, emphasizing the role of the external managerial labor market. The model is then used to explore the relationship between changes in public policy, managerial effort and X-inefficiency. Certain predictions of the model are tested using cross-section data from a survey of firms in two subsidized industries in Ghana. Efficiency indices are computed on the basis of a translog frontier production function. Variations in relative efficiency are then correlated with several explanatory variables including the presence or absence of subsidy payments to the firm. Subsidized firms in both industries are found to exhibit higher relative levels of X-inefficiency.

Bell System scale economies estimated from a random coefficients model

This paper uses a variant of the Cobb-Douglas production function whose log-linear form looks like translog frontier. The parameters of the production function are estimated by a new method called the two stage ridge (TSR) estimator. It is applicable whenever multicollinearity is present both in the estimation of the means and variances of the random coefficients. The results seen to support the presence of scale economics in the Bell System. For our data it appears the TSR estimation is valid and provides additional insights. Thus it should be a valuable tool in similar models elsewhere.