Scandinavian Working Papers in Economics

Working Paper Series,
Norwegian University of Life Sciences, School of Economics and Business

No 02-2015: Maize Productivity and Input Subsidies in Malawi: A State-Contingent Stochastic Production Frontier Approach

Stein Holden () and Christopher J. O’Donnell
Additional contact information
Stein Holden: School of Economics and Business, Norwegian University of Life Sciences, Postal: Norwegian University of Life Sciences, School of Economics and Business, P.O. Box 5003 NMBU, N-1432 Ås, Norway
Christopher J. O’Donnell: School of Economics, The University of Queensland, Australia, Postal: Norwegian University of Life Sciences, School of Economics and Business, P.O. Box 5003 NMBU, N-1432 Ås, Norway

Abstract: We make cross-sectional comparisons of productivity in a risky agricultural setting. To make meaningful comparisons, we find it necessary to define a new productivity index that satisfies important axioms from index number theory (e.g., transitivity). The index can be computed without any information on output or input prices. However, it cannot be computed without an estimate of a state-contingent production frontier. We use maximum likelihood methods to estimate a state-contingent stochastic production frontier that explicitly allows for variations in input quality. We find that differences in productivity are mainly due to differences in environment and scale-mix efficiency. In turn, we conjecture that differences in scale-mix efficiency are partly driven by variations in access to input subsidies. The maximum likelihood estimator appears to do a poor job of disentangling the effects of technical inefficiency and statistical noise.

Keywords: agricultural productivity; risky environment; imperfect factor markets; state-contingent analysis; total factor productivity; input subsidies

JEL-codes: C40; O13; Q10

28 pages, March 12, 2015

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