Measuring the impacts of production risk on technical efficiency: A state-contingent conditional order-m approach

• We study the influence of risk on farms’ technical efficiency levels.
• An extension of the order-m efficiency scores is used.
• The state-contingent framework is used to model risk.
• The empirical application focuses on a sample of Catalan arable crop farms.
• Accounting for production risks increases the technical performance.

This article studies the influence of risk on farms’ technical efficiency levels. The analysis extends the order-m efficiency scores approach proposed by Daraio and Simar (2005) to the state-contingent framework. The empirical application focuses on cross section data of Catalan specialized crop farms from the year 2011. Results suggest that accounting for production risks increases the technical performance. A 10% increase in output risk will result in a 2.5% increase in average firm technical performance.