ABSTRACT
The choice of the functional form, the structure and form of error terms etc., all contribute to specification error while using parametric techniques. The nonparametric technique requires only one assumption—the production set is convex. The ratio OT/OS is called the firm-specific allocative efficiency of the firm which measures the proportion by which the cost in a technically efficient input mix is higher than the minimum feasible cost of production. The usefulness of allocative inefficiency lies in determining over- or underuse of individual inputs with respect to their prices and thereby finding the feasible minimum cost input mix. The large t-values indicate overfitting which is expected in this case. In addition, the curve seems high elastic to the non-information technology labor and relatively inelastic to the remaining inputs for most years. The slopes of the production frontier with respect to each input factor give the marginal products of the input factors.
