On Sources of Measured Technical Efficiency: The Impact of Information

The concept of technical efficiency differences—different levels of output with identical levels of input—is unsatisfactory from a production theoretic point of view. In this paper a model is developed in which differences in non‐conventional inputs and especially information obtained by managers may explain productivity differences between firms. Estimation of the underlying production structure (of a sample of California dairy farms) via a modified non‐homothetic Cobb‐Douglas production function shows the specific impact of information within the neoclassical production framework. This is conceptually and analytically superior to the methodology of frontier production functions.