Modeling Technical Efficiency with Production Risk: A Study of Fish Farms in Nigeria

Abstract

This study models technical efficiency with production risk in inputs. Data from a total of 64 fish farms randomly sampled from Oyo State, Nigeria, were used for the analysis. The study employed the stochastic frontier model with flexible risk specification. The empirical findings show that the mean fish output is significantly influenced by labor, fertilizer, and feed. Fertilizer and feed are found to be risk-increasing inputs, whilst labour is revealed to be a risk-reducing input. This implies that an average risk-averse farmer is expected to use less of fertilizer and feed and more labor compared to a risk-neutral farmer from the study area. Furthermore, it is revealed that labour, farming experience, education, and access to market significantly decreases the technical inefficiency of farmers. The estimated technical efficiency shows that the efficiency score is overstated when the production technology of the fish farms is modeled without the flexible risk component.

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