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A stochastic frontier production function that incorporates a model for technical inefficiency effects is used to investigate the industrial production of Greek food industries. Panel data comes from 29 Greek firms in 1988 through 1992. Parameters considered in the model for inefficiency effects include the degree of vertical integration, capital intensity, location, and time. A translog stochastic frontier function is estimated simultaneously with those variables in the model for inefficiency effects. The results indicate that technical efficiency among the firms ranges from 42 percent to 99 percent. More efficient firms are those with a higher degree of vertical integration that are located in rural areas and have sufficient investment in human capital to exploit the economies of scale obtained through investment in fixed capital. Most firms improve their performance over time, reducing the efficiency gap.


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