A Flexible Time-Varying Specification of the Technical Inefficiency Effects Model

The temporal pattern of technical efficiency in the technical inefficiency effects model, as initially modeled by Battese and Coelli (1995), is rather restrictive. Specifically, it a priori imposes a common pattern upon all firms in the sample, which in addition is monotonic over time. Obviously this is an undesirable implication of the model especially when there is evidence of strong firm heterogeneity and/or a long time span. To overcome this shortcoming, the present paper incorporates the Cornwell, Sickless and Schmidt (1990) flexible specification of the temporal pattern of technical efficiency into technical inefficiency effects model. The proposed formulation is then applied to the agricultural sector of the EU and US, during the period 1973-1993. The empirical result support the proposed formulation as quite different temporal patterns of technical efficiency have been found for the ten countries included in the analysis.