Production and stochastic efficiency: An application to the Colombian footwear and leather industry

In this paper, we characterize and study the efficiency of a representative set of firms in the leather and footwear sector in Bogotá, Bucaramanga, Cúcuta and the Metropolitan Area of Medellin. This study is based on a survey addressing multiple aspects of production in this industry (inputs, integration of activities, administrative management, innovation, exports, etc). Our results suggest that a reasonable percentage of total variance is accounted for by the variance of the inefficiency term. Additionally, the sample exhibits diminishing returns to labor. Even though many firms seem to be efficient, the leather sector as a whole is not operating near its production possibilities frontier.