Technological Differences, Theoretical Consistency, and Technical Efficiency: The Case of Hungarian Crop-Producing Farms

Abstract

Effective agricultural policymaking requires the accurate estimation of the production technology and efficiency of farms. However, several methodological issues should be considered when modelling production and estimating technical efficiency. In this paper, we focus on two of these—technological heterogeneity and theoretical consistency—as implied in microeconomic theory. Heterogeneity in the efficiency literature is often evaluated using a variable intercept model. However, in farm production, it is likely that heterogeneity also affects the marginal productivity of production factors. Some earlier papers investigated the effect of unobserved heterogeneity on technical efficiency using latent class models, but the application of random parameter models is limited. One of our main contributions in this paper is that we apply a modified version of a random parameter model to investigate the effect of unobserved heterogeneity on production factors and efficiency. The second aim was to impose regularity conditions into the model through introducing linear and non-linear constraints and thereby investigate their significance. Third, we examined the relationship between unobserved heterogeneity and the natural and economic conditions of farms. Our findings show that heterogeneity has a greater effect on variation in output than technical efficiency; furthermore, the violation of theoretical consistency significantly influences the results. These findings also reveal that the explanatory power of regional natural and economic conditions is significant but not sufficient on the variance of estimated unobserved heterogeneity.

Five Decades of Productivity and Efficiency Changes in World Agriculture (1969–2013)

“…Alvarez and del Corral [46] criticized the popular trend in the literature which assumes homogenous technology for all the producers, and applied a latent class model approach to empirically prove that such simplified assumptions result in biased estimates. Similarly, Cillero applied a latent class model to investigate the consequences of differences in production technology on Irish beef farms [47], whereas few studies have applied random parameter models [48,49]. A very similar one to ours is the work of Baráth and Fertő [50], who applied O'Donnell's FPI index framework and estimated TFP parameters and convergence to European agriculture.…”

Financial efficiency analysis of Hungarian agriculture, fisheries and forestry sector

“…Various authors in several periods examined the efficiency of Hungarian agricultural companies in Hungary, including Bakucs et al (2010Bakucs et al ( , 2020, Baráth et al (2020Baráth et al ( , 2021, and Kovacs and Szucs (2020). These analyses were mainly based on the FADN database.…”

Policy Gaps Related to Sustainability in Hungarian Agribusiness Development

“…Crop production has become greener after the transition because of the market problems; it was simply not worth using fertilizers and pesticides [47]. After the EU accession in 2004, the subsidies have shifted crop production mainly towards cereals and industrial crops, and the intensification of production is still increasing [48]. In contrast, the output of the capital-and labor-intensive vine-fruit and horticulture sectors are declining due to complex reasons.…”