3. Performance Measurement and a Review of Literature

This chapter is divided into two parts. The first part introduces the theoretical framework of technical, allocative and their combinations’ (economical) efficiency measurement based on input-oriented (cost minimization) or output-oriented (output maximization) measurements. This part addresses some of the drawbacks of cross-sectional data in technical efficiency measurement and addresses the advantages of using panel data instead. The second part of the chapter provides a detailed review of literature on measuring technical efficiency. This chapter makes three main contributions to literature. First, this book fills the gap between a methodological analysis of panel data stochastic frontier models and its empirical applications in the agricultural sector by reviewing existing stochastic panel data models in literature. Second, the book considers the effect of time in non-parametric models using a Window analysis. Time effect is usually ignored in non-parametric frontier models, especially in new partial frontier models (for example, Order-m and Order-α models). Third, the book not only compares different parametric and non-parametric models but it also chooses the models which are best suited to the datasets that are used based on different tests.