Econometric Approaches

Econometric approaches provide another avenue to implementing the frameworks and concepts of dynamic efficiency and productivity measurement. This chapter addresses both structural and reduced-form econometric approaches to estimating the dynamic directional distance function directly as well as to estimating the cost function that accommodates technical inefficiency. An application to a farm-level panel data set is presented that estimates the decomposition of dynamic cost inefficiency into technical and allocative inefficiency measures presented in Chapter 4 and then determines the components of primal and dual Luenberger total factor productivity change based on the elaboration of these concepts in Chapter 5. In addition to the discussion of empirical issues, this chapter provides an empirical illustration using micro-level data.