FRONTIER PRODUCTION FUNCTIONS AND THE MEASUREMENT OF TECHNICAL EFFICIENCY

Abstract

A measure of relative producer performance is often useful for policy purposes and the concept of economic efficiency provides a theoretical basis for such a measure. Yet several authors argue that the concept of efficiency and conventional efficiency measures are meaningless for the evaluation of real‐world performance. This paper examines some of the issues and argues that producers' performance may be measured using the concept of technical efficiency. Alternative technical efficiency measures are examined including those of Timmer (1971) and Kopp (1981). A frontier production function is estimated for a cross‐section of North West farms and these two measures are computed under various assumptions on the fixity of agricultural inputs.