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Bias free measurement of technical efficiency

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  • Kaliappa Kalirajan
  • Shashanka Bhide

Abstract

Technical efficiency, which is a measure of production performance of a firm, has been estimated generally using a primal production frontier. Since the estimation is carried out for a given level of inputs, the efficiency measure includes the effect of 'input-mix' or 'input-allocation' and consequently, the technical efficiency estimate is biased. The objectives of this paper are to gauge the magnitude of 'input-mix' bias in technical efficiency estimate and to suggest a method to measure technical efficiency eliminating the bias. The workability of the suggested method is demonstrated through an empirical analysis using agricultural data from India covering the period 1970-1993.

Suggested Citation

  • Kaliappa Kalirajan & Shashanka Bhide, 2006. "Bias free measurement of technical efficiency," Journal of Applied Statistics, Taylor & Francis Journals, vol. 33(5), pages 523-533.
    • Handle: RePEc:taf:japsta:v:33:y:2006:i:5:p:523-533
    DOI: 10.1080/02664760600585592
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    References listed on IDEAS

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    1. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-323, March.
    2. Meeusen, Wim & van den Broeck, Julien, 1977. "Efficiency Estimation from Cobb-Douglas Production Functions with Composed Error," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 18(2), pages 435-444, June.
    3. Aigner, Dennis & Lovell, C. A. Knox & Schmidt, Peter, 1977. "Formulation and estimation of stochastic frontier production function models," Journal of Econometrics, Elsevier, vol. 6(1), pages 21-37, July.
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