Do outsourcing services provided by agricultural cooperatives affect technical efficiency? Insights from tobacco farmers in China

Abstract In this study, we assess whether household outsourcing production tasks provided by tobacco cooperatives affect household technical efficiency, using the survey data from 449 households in Guizhou Province, China in 2014. The one‐step estimation of the stochastic frontier production function is employed. We also use the instrumental variable approach to address the potential selection biases that may arise from unobserved factors that are correlated with both outsourcing service adoption and technical efficiency. The empirical results show that the farmers’ decision to outsource agricultural services provided by cooperatives has a positive effect on technical efficiency. The effects of outsourcing on technical efficiency are highly heterogeneous at different production stages. It is also interesting to note that the magnitudes of outsourcing effects on technical efficiency are similar between labor‐intensive services and technology‐intensive services.