Efficiency analysis under uncertainty: a simulation study1. (9th April 2014)

• Record Type: Journal Article
• Authors: Shankar, Sriram
• Is Part Of: Australian journal of agricultural and resource economics. Volume 59:Number 2(2015:Apr.)
• Page Start: 171
• Page End: 188
• Publication Date: 2014-04-09
• Subjects: Agriculture -- Economic aspects -- Periodicals; Agriculture -- Environmental aspects -- Periodicals; Natural resources -- Periodicals; Agriculture -- Economic aspects -- Australia -- Periodicals; Natural resources -- Australia -- Periodicals; 338.1
• DOI: 10.1111/1467-8489.12055
• Languages: English
• ISSNs: 1364-985X

Abstract

<abstract abstract-type="main" id="ajar12055-abs-0001"> <title> <x xml:space="preserve">Abstract</x> </title> <p>We model production technology in a state‐contingent framework assuming that the firms maximise <italic>ex ante</italic> their preference function subject to stochastic technology constraint; in other words, firms are assumed to act rationally. We show that rational producers who face the same stochastic technology can make significantly different production choices. Further, we develop an econometric methodology to estimate the risk‐neutral probabilities, efficiency scores and the parameters of stochastic technology when there are two states of nature and only one of which is observed. Finally, we simulate noiseless data based on our state‐contingent specification of technology. Our state‐contingent estimator recovers technology parameters and other economic quantities of interest without any error. But, when we apply conventional efficiency estimators to the simulated data, we obtain biased estimates of technical efficiency.</p> </abstract>