AN ANALYSIS OF TECHNICAL, ALLOCATIVE, AND SCALE INEFFICIENCY: THE CASE OF ECUADORIAN DAIRY FARMS

The economic efficiency of 68 Ecuadorian dairy farms is investigated by estimating technical, allocative, and scale efficiencies for each using stochastic frontier methodology. Empirical results show that technical inefficiency exists for all of these farms – ranging from 11.8% to 12.8%. Large and medium-sized farms are found to be allocatively more efficient than the small farms as a group. Finally, estimates of scale inefficiency show that most of these farms are producing output at a level below the optimum.