Abstract
We examine an extension of the latent class stochastic frontier model (LCSFM) to productivity estimation and the decomposition of productivity change into technical change, output-oriented technical efficiency change, and scale change. We base our productivity estimation on a Multi-class Grifell-Tatjé, Lovell & Orea Malmquist (GLOM) index. An advantage of this new productivity index is to account for classes' posterior probabilities to derive individual farm parameters. In addition, we extend our analysis to estimate a metafrontier GLOM productivity index to explore potentialities when all firms use the best available technologies. An empirical application to a sample of French sheep and goat farms observed between 2002 and 2021 confirms the necessity to account for technological heterogeneity when measuring productivity change. Among the two classes of farms identified by the LCSFM, the intensive class experiences TFP gains, while the extensive class sees its TFP worsening. However, the gap between intensive and extensive technologies seems to reduce over time. Finally, the multi-class GLOM reveals technical change as the primary driver of productivity for French goat and sheep farms.
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Notes
The proportionality axiom implies that “if all variables change \(\lambda \)-fold then the index that measures this change is equal to \(\lambda \)” (O'Donnell 2012 p.6).
For multilateral and multi-temporal comparisons, O’Donnell (2014) and O’Donnell (2016) suggest that a productivity index must also satisfy the transitivity property. The transitivity property has recently re-emerged (O’Donnell 2009) after being discarded by early scholars (Fisher 1922, Frisch 1930, 1936). These early scholars believed transitivity is unnecessary when identity or time reversal axioms are satisfied. The theoretical inconsistency of the transitive indices comes from the fact that the weights used to compute these indices are constant over time and across firms, ignoring the economic importance of inputs and outputs. Moreover, imposing transitivity implies some restrictions on production technology, which might be rejected by the data. We thank both Reviewers for pointing out this issue.
We thank one Reviewer for this suggestion.
We thank one Reviewer for underlining this point.
TFP can be defined using other ways, for instance using indices instead of growth rates (see Sickles & Zelenyuk 2019a for more details).
For Eq. (4) to be interpretated as TFP, the sum of output and input weights must sum up to one, respectively.
See Appendix 1 for the Lemma.
Our approach is slightly different than the one in Orea (2002) because of the way we define technological/technical change.
Full results can be found in Appendix 2.
The full results can be found in Appendix 2.
In the decomposition of the TFP, we have neglected the noise component, as it does not bring any economic information. As such the sum of components (TCI + OTEI + SCI) does not match the level of the TFP change.
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Acknowledgements
The authors acknowledge financial support from the Centre for Studies and Strategic Foresight (CEP) in the French Ministry of Agriculture under the framework of the research project COMPANI ("Competitiveness of the livestock sectors in France"). Remote access to the French FADN data, provided by the Ministry of Agriculture and used in this work, is supported by a public grant overseen by the French National Research Agency (ANR) as part of the "Investissements d'Avenir" program (reference: ANR-10-EQPX-17-Centre d'accès sécurisé aux données-CASD).
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Appendices
Appendix
Appendix 1: Diewert (1976) 's Quadratic Lemma
As \(\frac{\partial {\text{ln}}{D}_{O}}{\partial {\text{ln}}T}=1\), in our case where \(T\) is one external shift factor, this becomes
Appendix 2
See Table
6.
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Dakpo, K.H., Latruffe, L., Desjeux, Y. et al. Measuring productivity when technology is heterogeneous using a latent class stochastic frontier model. Empir Econ (2024). https://doi.org/10.1007/s00181-024-02604-0
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DOI: https://doi.org/10.1007/s00181-024-02604-0
Keywords
- Multi-class Grifell-Tatjé
- Lovell
- Orea Malmquist productivity index
- Metafrontier GLOM productivity index
- Latent class stochastic frontier
- Sheep and goat farms
- France