Estimating persistent and transient technical efficiency and their determinants in the presence of heterogeneity and endogeneity

We develop an estimation procedure that generates consistent estimates of the technology parameters, long-run (persistent) and short-run (transient) technical inefficiencies marginal effects their determinants for stochastic frontier model developed by Colombi et al. (2014, Journal Productivity Analysis 42, 123) Kumbhakar 41, 321). Our approach accounts three sources potential endogeneity: (i) unobserved heterogeneity; (ii) simultaneity input use with both types efficiency; (iii) correlation noise term regressors. Using this we examine effect direct payments farm size on persistent transient efficiency French crop farms before after European Union's Common Agricultural Policy decoupling reform 2003. results show subsidy per hectare utilised agricultural land had a significant positive negative during period decoupling. For reform, subsidies is found to be significantly insignificant efficiency. The overall in periods, albeit substantially lower only prior reform: it reduced inefficiency but increased period.