Estimating technical efficiency at farm level when plot-level data are available

Abstract Ownership of multiple plots by a farmer leads to hierarchical structure of data on production. Researchers use averaging of plot-level technical efficiency scores for computing the farm-level technical efficiency score. With Monte Carlo simulation, we checked the performance of averaging and that of the linear mixed effects model in estimating the true farm efficiency. We generated true efficiency scores under half-normal, normal, and skew-normal distributions of the farm-level random effect. Plot-level score averaging did not estimate the true efficiency. The linear mixed effects model preserved the ranking as well as estimated the true farm-level efficiency score.