An application of Stochastic Frontier in Estimating the Technical Efficiency of smallholder Cereal Crop Producers: The Case of seven Peasant Associations (Pas) in the Amhara Region
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Date
2001-06
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A.A.U
Abstract
This study tried to predict the technical efficiency levels of farmers over time and
the factors that are responsible to the variation in technical efficiencies among
farmers. We considered seven peasant associations (PAs) in Amhara region from
the four year agricultural households survey panel data that has been conducted
by the Department of Economics (Addis Ababa University). Parameters from the
stochastic frontier and the technical inefficiency effects model have been estimated
simultaneously. A more flexible stochastic frontier production functional form, i.e. ,
the translog, for farmers in Milki, Karafino, Bokafya and Shumsheha and the Cobb Douglas
stochastic frontier production functional form for farmers in other PAs
have been found to be appropriate production technologies in estimating the farm
level technical efficiencies. The hypothesis that farmers are fully technically efficient
so that the conventional (average) production function is adequate has been
rejected for all PAs. For two of the PAs (Milki and Shumsheha), appropriate
technical efficiency predictions have been obtained based on a truncated normal
distribution of the inefficiency term whereas a half normal distribution of the
inefficiency term gave good predictions of farm level technical efficiencies for the
rest of the PAs. The results in all PAs show the existence of technical inefficiency
implying that there is a hope, at least for a short run, to increase agricultural
production only by improving the technical efficiency of farmers.
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Keywords
Amhara Region, Estimating the Technical