Estimating State-Contingent Production Frontiers
Chambers and Quiggin (2000) advocate the use of state-contingent production technologies to represent risky production and establish important theoretical results concerning producer behaviour under uncertainty. Unfortunately, perceived problems in the estimation of state-contingent models have limited the usefulness of the approach in policy formulation. We show that fixed and random effects state-contingent production frontiers can be conveniently estimated in a finite mixtures framework. An empirical example is provided. Compared to standard estimation approaches, we find that estimating production frontiers in a state-contingent framework produces significantly different estimates of elasticities, firm technical efficiencies and other quantities of economic interest.
|Date of creation:||2004|
|Date of revision:|
|Contact details of provider:|| Postal: Department of Economics, The University of Melbourne, 4th Floor, FBE Building, Level 4, 111 Barry Street. Victoria, 3010, Australia|
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- Chambers, R.G. & Quiggin, J., 1995.
"Separation and Hedging Results with State-Contingent Production,"
293, Australian National University - Department of Economics.
- Chambers, Robert G & Quiggin, John, 1997. "Separation and Hedging Results with State-Contingent Production," Economica, London School of Economics and Political Science, vol. 64(254), pages 187-209, May.
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- Robert G. Chambers & John Quiggin, 2004.
"Technological and financial approaches to risk management in agriculture: an integrated approach ,"
Australian Journal of Agricultural and Resource Economics,
Australian Agricultural and Resource Economics Society, vol. 48(2), pages 199-223, 06.
- Chambers, Robert G. & Quiggin, John C., 2004. "Technological and financial approaches to risk management in agriculture: an integrate approach," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 48(2), June.
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- Rasmussen, Svend, 2004. "Optimizing Production under Uncertainty: Generalisation of the State-Contingent Approach and Comparison of Methods for Empirical Application," Unit of Economics Working papers 24184, Royal Veterinary and Agricultural University, Food and Resource Economic Institute.
- Kumbhakar, Subal C., 1990. "Production frontiers, panel data, and time-varying technical inefficiency," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 201-211.
- Battese, George E. & Coelli, Tim J., 1988. "Prediction of firm-level technical efficiencies with a generalized frontier production function and panel data," Journal of Econometrics, Elsevier, vol. 38(3), pages 387-399, July.
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