Estimating Technical Efficiency of Australian Dairy Farms Using Alternative Frontier Methodologies

Abstract

In this paper we estimate and examine technical efficiency for a cross-section of Australian dairy farms using various frontier methodologies; Bayesian and Classical stochastic frontiers, and Data Envelopment Analysis. Our results indicate technical inefficiency is present in the sample data. We also identify statistical differences between the point estimates of technical efficiency generated by the various methodologies. However, the rank of farm level technical efficiency is statistically invariant to the estimation technique employed. Finally, when we compare confidence/credible intervals of technical efficiency we find significant overlap for many of the farms’ intervals for all frontier methods employed. Our results indicate that the choice of estimation methodology may matter, but the explanatory power of all frontier methods is significantly weaker when we examine interval estimate of technical efficiency.