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Abstract
The consideration in the present study is mainly conceptual. The objective is to show
how Data Envelopment Analysis (DEA) can be used to reveal the true input-output relations
in an industry. In the estimation of a production function it is assumed that all
firms use the existing technology efficiently. However, in the real world the observed
firms produce homogeneous outputs with differences in factor intensities and in managerial
capacity. Hence, inefficiencies are hidden in the estimated production functions.
In order to overcome this drawback of the parametric approach and to reveal the true
nature of the input-output relations in production, given the available technology, the
DEA approach is applied. In this study DEA is applied in order to select the farms that
utilize efficiently the existing technology, allowing the estimation of a production function
that reveals the true input-output relations in sheep-goat farming, using farm accounting
data from a sample of 108 sheep-goat farms.