Frontier Technology and Inefficiencies in Programming Sector Models: An Application to Swedish Agriculture.

A new approach to sector modelling with mathematical programming is proposed. The approach is based on information received from nonparametric efficiency analysis of farm data. Efficient farms are used to construct a set of empirically based, multi-input, multi-output technologies in the sector model. To further improve the depiction of production in the model, observed inefficiencies are also incorporated. An application of the technique replicates base-year observations better than a traditional model. Further, the new model has less tendency towards over-specialisation and unrealistic jumps in the price response. By explicitly taking existing structural inefficiencies into account, the model provides indications of the direction and strength of incentives for structural change. Copyright 1997 by Oxford University Press.