Let u ≥ 0 be technical inefficiency, let z be a set of variables that affect u, and let δ be the parameters of this relationship. The model satisfies the scaling property if u(z, δ) can be written as a scaling function h(z, δ) times a random variable u* that does not depend on z. This property implies that changes in z affect the scale but not the shape of u(z,δ). This paper reviews the existing literature and identifies models that do and do not have the scaling property. It also discusses practical advantages of the scaling property. The paper shows how to test the hypothesis of scaling, and other interesting hypotheses, in the context of the model of Wang, Journal of Productivity Analysis, 2002. Finally, two empirical examples are given. Copyright Springer Science+Business Media, LLC 2006Stochastic frontier model, Scaling property, Technical inefficiency, C12, C31, C52,

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During recent decades the dairy sector has shown a global tendency towards intensification. This structural change may have significant effects on farm efficiency. The goal of this study is to offer an empirical analysis of the effect of intensification on dairy farming. To do this, we first classify our sample of dairy farms according to their level of intensification using a cluster analysis. We then estimate independent stochastic cost frontiers for each group of farms and calculate their levels of efficiency. The methodology used in this article allows for the presence of different technologies within the sample, a methodological issue frequently avoided in the empirical literature. The empirical results show that intensive farms are closer to their cost frontier than the extensive ones, suggesting a positive relation between intensification and efficiency.

The relationship between technical efficiency and size might be affected by farm heterogeneity. We analyse this relationship conditional on a set of control variables. These control variables are chosen using a production model where technical efficiency is introduced as a parameter. As a result, technical efficiency affects both the input demand and the output supply of a profit maximising producer. The empirical application explores these issues using panel data of dairy farms in Spain.

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Managerial ability has important implications for farm growth. In this article we first show in a production model that increasing output with a fixed level of managerial ability can lead to a decrease in profits. Next, we discuss the effect that managerial ability has on economies of size. In the empirical part, economies of size are estimated for a sample of dairy farms using a proxy for managerial ability, which is calculated as a technical efficiency index. The results show that increasing farm size while holding managerial ability constant can be an important source of diseconomies of size. Copyright 2003, Oxford University Press.

Agricultural production estimates have often differentiated and estimated different technologies within a sample of farms. The common approach is to use observable farm characteristics to split the sample into groups and subsequently estimate different functions for each group. Alternatively, unique technologies can be determined by econometric procedures such as latent class models. This paper compares the results of a latent class model with the use of a priori information to split the sample using dairy farm data. Latent class separation appears to be a superior method of separating heterogeneous technologies and suggests that technology differences are multifaceted.