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We focus on the importance of the assumptions regarding how inefficiency should be incorporated into the specification of the data generating process in an examination of a sector's production or efficiency. Drawing on the literature on non-nested hypothesis testing, we find that the model selection approach of Vuong (1989) is a potentially useful tool for identifying the best specification before carrying out such studies. We include an empirical application using panel data on Spanish dairy farms where we estimate cost frontiers under different specifications of how inefficiency enters the data generating process (in particular, efficiency is introduced as an input-oriented, output-oriented and hyperbolic parameter). Our results show that the different models yield very different pictures of the technology and the efficiency levels of the sector, illustrating the importance of choosing the most correct model before …