Parametric Decomposition of Output Growth Using A Stochastic Input Distance Function

Abstract

This article proposes a tractable approach for analyzing the sources of TFP changes (i.e., technical change, changes in technical and allocative inefficiency, and the scale effect) in a multi‐output setting, while retaining the single‐equation nature of the econometric procedure used to estimate the parameters of the underlying technology. The proposed approach relies on Bauer's cost function‐based decomposition of TFP changes and the duality between input distance and cost functions. The empirical results are based on a sample of 121 UK livestock farms observed over the period 1983–92 and a translog input distance function.