This paper presents a formulation of stochastic frontier models for milk cost in Estonia. Two distinct models of milk cost were investigated. A balanced panel of 45 Estonian farmers observed during the period 2001 to 2006 was used. For the models parameter estimation a computer program FRONTIER Version 4.1 was used. The results for various specifications were compared and discussed. The results from stochastic frontiers model analysis were compared with the results of OLS. Predicted cost efficiencies of the Estonian farmers were compared under the different model specifications. This analysis demonstrated that stochastic frontier analysis (SFA) can be implemented for parameter estimation of econometric models and for predicting the cost efficiency of milk cost in Estonian farms.

Modeling milk cost in Estonia: a stochastic frontier analysis approach.

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