Correcting farm inefficiency estimates leads to more accurate policy decisions.
The article shows that correcting for heteroscedasticity in estimating farm efficiency is crucial. By extending a correction method to panel data, the researchers found that technical efficiency measures can be significantly affected by heteroscedasticity. Correcting for this leads to more accurate estimates of inefficiency. In a study on cereal farms, it was discovered that the usual efficiency measures are sensitive to this correction, highlighting the importance of accounting for heteroscedasticity in such analyses.