Classical and bayesian estimation of production frontiers for major food crops of India

Production Frontier is a widely coined concept in the theory of productions to measure the efficiency of the production unit. Estimation of production function for an economy by Ordinary Least Squares (OLS) provides the estimate of an "average" function, which is associated with the mean output for given input levels. The notion of an average function would be more meaningful in a random coefficient model. An average function can be obtained when the random coefficients obtain their expected values. The textbook definition of a production function holds that it gives the maximum possible output which can be produced from thegiven quantities of a set of inputs. In such a case the word "frontier" may be meaningfully applied because the function sets a limit to the range of possible observations. From an econometric view point, the estimation of frontiers is interesting because the concept of maximality (or minimality in case of costs) puts a bound on the dependent variable. One may observe the points below the frontier as the indicators of inefficiency.

This paper is an attempt to measure the efficiency of the major sub regions producing Rice and Wheat using Classical and Bayesian Estimation of Production Frontiers. The most popular Cobb-Douglas Model of production function is used for estimating these Frontiers and provides efficiency rankings to the major sub regions of India.