Author: Dr. Eddy Hope Kabasele Bambe We estimated a model of stochastic cost frontier functions to better measure inefficiency. To ...
Author: Dr. Eddy Hope Kabasele Bambe
We estimated a
model of stochastic cost frontier functions to better measure inefficiency. To
identify a more reliable estimation of empirical cost efficiencies, we
elaborated a framework with a stochastic frontier trans-logarithmic
cost function for cross-sectional data that captures the effects of exogeneity
and endogeneity on both inefficiency estimation and the random noise term. The
main contribution of this study is that we are the first to successfully apply
a stochastic frontier cost function model to cross-sectional data in the
agricultural sector while considering the effects of exogeneity and endogeneity.
Previous studies, with the exception of Wang (2002), have ignored this aspect.
Key to addressing this is recognizing the relevance of including in the main
stochastic frontier model the exogenous variables in both components of the
error term, i.e., inefficiency and noise representing the idiosyncratic error
term. The analysis was illustrated using data on 1253 Chinese seed cotton
producers in three main locations. The objective was to acquire a better
understanding of both cost inefficiency and its determinants for Chinese seed
cotton farms despite the serious issue of economic theory. Our results indicate
that the assumption that cost minimization based on input prices orienting cost
inefficiency may be inappropriate for the data considered in this study. We
also obtained a nearly zero inefficiency score among our Chinese seed cotton
producers. Surprisingly, we obtained homogenous cost inefficiency estimates in
different locations, which indicates consistent integration of the cotton
production sector in China. Our results, however, suggested significant
differences in both input prices and other variables. Finally, the main result
of this study was that having the proper climate conditions has a beneficial
effect for producers. Thus, our main conclusion was to support of a policy of
relocating cotton production to the appropriate areas.
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