Transient and persistent technical efficiency and its determinants: the case of crop farms in Austria

We analyse persistent and transient technical efficiency of crop farms in Austria from 2003 to 2017 by estimating the four-component stochastic frontier model using a multi-step procedure and extend it to account for heterogeneity bias by introducing the Mundlak adjustments. Moreover, we examine the determinants of both transient and persistent technical inefficiency. Results show that farms with favourable natural conditions, a higher share of family labour, and a lower share of owned land are more persistently efficient. Farm specialization, size, and farmers' age are positively associated with transient efficiency, while subsidies have adverse impacts. Significant technological progress coupled with, on average decreasing technical efficiency indicates a diverging sector.