Transient and Persistent Technical Efficiencies in Rice Farming: A Generalized True Random-Effects Model Approach

Abstract

This study estimates transient and persistent technical efficiencies (TEs) using a generalized true random-effects (GTRE) model. We estimate the GTRE model using maximum likelihood and Bayesian estimation methods, then compare it to three simpler models nested within it to evaluate the robustness of our estimates. We use a panel data set of 945 observations collected from 344 rice farming households in Vietnam’s Mekong River Delta. The results indicate that the GTRE model is more appropriate than the restricted models for understanding heterogeneity and inefficiency in rice production. The mean estimate of overall technical efficiency is 0.71 on average, with transient rather than persistent inefficiency being the dominant component. This suggests that rice farmers could increase output substantially and would benefit from policies that pay more attention to addressing short-term inefficiency issues.