Using cross-section data to adjust technical efficiency indexes estimated with panel data

This article proposes a procedure to incorporate cross-sectional information in the estimation of technical efficiency indexes obtained from panel data. A conventional index of technical efficiency is estimated in a first stage using panel data on inputs and outputs. The individual effects from the first stage are then adjusted using cross-sectional information, obtaining a corrected technical efficiency index. The model is applied to a panel of eighty-two Spanish dairy farms, where only cross-sectional information about input quality is available. An analysis of variance is performed between some variables and bath the corrected and the uncorrected indexes, finding that the conclusions derived from the two analyses are different.