Technical and Environmental efficiencies and Best Management Practices in Agriculture

Tamini, Lota D. and Larue, Bruno (2009): Technical and Environmental efficiencies and Best Management Practices in Agriculture.

Abstract

An input distance function (IDF) is estimated to empirically evaluate and analyze the technical and environmental efficiencies of 210 farms located in the Chaudière watershed (Quebec), where water quality problems are particularly acute because of the production of undesirable outputs that are jointly produced with agricultural products. The true IDF is approximated by a flexible translog functional form estimated using a full information maximum likelihood method. Technical and environmental efficiencies are disaggregated across farms and account for spatial variations. Our results show that there is a significant correlation between technical and environmental efficiencies. The IDF is used to compute the cumulative Malmquist productivity index and the Fisher index. The two indices are used to measure changes in technology, profitability, efficiency, and productivity in response to the adoption of 2 selected best management practices (BMPs) whose objective is to reduce water pollution. We found significant differences across BMPs regarding the direction and the magnitude of their effect on profitability, efficiency and productivity.

• Item Type: MPRA Paper
• Language: English
• Keywords: Environmental efficiency, distance function, phosphorus runoff, productivity, profitability, technical efficiency.
• Subjects: Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q52 - Pollution Control Adoption and Costs ; Distributional Effects ; Employment Effects; C - Mathematical and Quantitative Methods > C4 - Econometric and Statistical Methods: Special Topics > C43 - Index Numbers and Aggregation; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q2 - Renewable Resources and Conservation > Q25 - Water

References

Althin, R., R. Färe, and S. Grosskopf. 1996. Profitability and Productivity Changes: An Application to Swedish Pharmacies. Annals of Operations Research, 66, 219-230.

Atkinson, S.E., C.H. Cornwell, and O. Honerkamp. 2003. Measuring and Decomposing Productivity Change: Stochastic Distance Function Estimation Versus Data Envelopment Analysis. Journal of Business and Economics Statistics, 21, 284–294.

Atkinson, S.E., and J.H. Dorfman. 2005. Bayesian Measurement of Productivity and Efficiency in the Presence of Undesirable Outputs: crediting electric utilities for reducing air pollution. Journal of Econometrics, 126, 445-468.

Atkinson, S.E., R. Färe, and D. Primont. 2003. Stochastic Estimation of Firm Inefficiency Using Distance Functions. Southern Economic Journal, 69, 596-611.

Ball, V.E., R.G. Felthoven, R.F. Nehring, and C.J. Morrison Paul. 2002. Costs of Production and Environmental Risk: Resource-Factor Substitution in U.S. Agriculture. In V.E.

Ball and G. W. Norton (eds.), Agricultural Productivity: Measurement and Sources of Growth, Kluwer Academic Publisher, Boston, MA. pp. 293-310.

Barbera, A., and V. McConnell. 1990. The Impact of Environmental Regulations on Industry Productivity: Direct and Indirect Effects. Journal of Environmental and Economics Management, 18, 50-65.

Battese, G.E., and T.J. Coelli. 1995. A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data. Empirical Economics, 20, 325-332.

Battese, G.E., and G.S. Corra. 1977. Estimation of a Production frontier Model: With Application to the Pastoral Zone of Eastern Australia. Australian Journal of Agricultural Economics, 21, 169-179.

Baumol, W.J., J.C. Panzar, and R.D. Willig. 1982. Contestable Markets and the Theory of Industry Structure. Harcourt Brace Jovanovich, New York.

Berg, S. A., F. R. Førsund, L. Hjalmarsson, and M. Suominen. 1993. Banking efficiency in the Nordic Countries. Journal of Banking and Finance, 17, 371-388.

Bravo-Ureta, B.E., and L. Rieger. 1991. Dairy Farm Efficiency Measurement using Stochastic Frontiers and Neoclassical Duality. American Journal of Agricultural Economics, 73, 421-428.

Camanho, A.S., and R.G. Dyson. 2006. Data envelopment analysis and Malmquist indices for measuring group performance. Journal of productivity Analysis 26: 35–49

Caves, D.W., L.R. Christensen, and W.E. Diewert. 1982. The Economic Theory of Index Numbers and Measurement of Input, Output and Productivity. Econometrica, 50, 1993-2004.

Coelli, T., and S. Perelman. 2000. Technical Efficiency of European railways. A Distance Function Approach. Applied Economics, 32, 1967–1976.

Coelli, T., S. Singh, and E. Fleming. 2003. An Input Distance Function Approach to the Measurement of Technical and Allocative Efficiency: with Application to Indian Dairy Processing Plants. Unpublished manuscript.

Färe, R., S. Grosskopf, and C.A.K. Lovell. 1994. Production Frontier. Cambridge University Press. Cambridge.

Färe, R., S. Grosskopf, C.A.K. Lovell, and S. Yaisawarng. 1993. Derivation Shadow Prices for Undesirable Outputs: A Distance Function Approach. Review of Economics and Statistics, 75, 374-380.

Färe, R., S. Grosskopf, D-W. Noh, and W. Weber. 2005. Characteristics of Polluting Technology: Theory and Practice. Journal of Econometrics, 126, 469-492.

Färe, R., and D. Primont. 1995. Multi-Output Production and Duality: Theory and Applications. Kluver Academic Publishers, Boston.

Farrell, M.J. 1957. The Measurement of Productive Efficiency. Journal of the Royal Statistical Society, 120, 253-290.

Fernandez, C., G. Koop, and M.F.J. Steel. 2000. A Bayesian Analysis of Multiple-Output Production Frontier. Journal of Econometrics, 98, 47-79.

Fernandez, C., G. Koop, and M.F.J. Steel. 2002. Multiple-Output Production with Undesirable Outputs: An Application to Nitrogen Surplus in Agriculture. Journal of American Statistical Association, 97, 432-442.

Førsund, F. R. 2002. On the circularity of the Malmquist productivity index. ICER working papers.

Fuentes, H.J., E. Grifell-Tatjé, and S. Perelman. 2001. A Parametric Distance Function Approach for Malmquist Productivity Index Estimation. Journal of Productivity Analysis, 15, 79-94.

Gangbazo, G., and A. Le Page. 2005. Détermination d’objectifs relatifs à la réduction des charges d’azote, de phosphore et de matières en suspension dans les bassins versants prioritaires. Direction des politiques de l’eau, Bureau de la gestion par bassin versant, Ministère du Développement durable, de l’Environnement et des Parcs, Québec, Envirodoc ENV/2005/0215, 40 p.

Georgescu-Roegen, N. 1951. The aggregate linear production function and its applications to von Neumann's economic model, in: Activity Analysis of Production and Allocation, T. Koopmans, ed., Wiley, New York, pp. 98-115.

Greene, W.H. 2008. Econometrics Analysis. 6th edition. Prentice-Hall, Inc.

Hansen, L.P. 1982. Large Sample Properties of Generalized Method of Moments Estimation. Econometrica, 50, 1029-1054.

Horbach, J. 2008. Determinants of Environmental Innovation - New Evidence from German Panel Data Sources. Research Policy, 37, 163–173.

Huhtala, A., and P-O. Marklund. 2005. Environmental Target and Shadow Prices of Bad Outputs in Organic and Conventional Farming. Contributed Paper, European Association of Agricultural Economists, 11th Congress, Copenhagen, Denmark. 2005.

Jondrow, J., C.A.K. Lowell, I.S. Materov, and P. Schmidt. 1982. On Estimation of Technical Inefficiency in the Stochastic Frontier of Production Function Model. Journal of Econometrics, 19, 233-238.

Just, R.E., and R.D. Pope. 1978. Stochastic Specification of Production Functions and Economic Implications. Journal of Econometrics, 7, 67-86.

Kumbhakar, S.C., S. Ghosh, and J.T. McGuckin. 1991. A Generalized Production Frontier Approach for Estimating Determinants of Inefficiency in U.S. Dairy Farms. Journal of Business and Economic Statistics, 9, 279-286.

Kumbhakar, S.C., and E.G. Tsionas. 2005. Measuring Technical and Allocative Inefficiency in the Translog Cost System: a Bayesian approach. Journal of Econometrics, 126, 355-384.

Managi, S. 2004. Competitiveness and Environmental Policies for Agriculture: Testing the Porter Hypothesis. International Journal of Agricultural Resources, Goveranance and Ecology 3 (3–4): 309–24.

Pastor, J.T., and C.A.K. Lovell. 2005. Circularity of the Malmquist productivity index. Economic Theory, 33, 591-599.

Paul, C.J.M., W.E. Johnston, and G.A.G. Frengley. 2000. Efficiency in New Zealand Sheep and Beef Farming: The impacts of Regulatory Reform. Review of Economics and Statistics, 82, 325-337.

Paul, C.J.M., and R. Nehring. 2005. Product Diversification, Production Systems, and Economic Performance in U.S. Agricultural Production. Journal of Econometrics, 126, 525-448.

Piot-Lepetit, I and M. Le Moing. 2007. Productivity and Environmental Regulation: the Effect of the Nitrates Directive in the French Pig Sector. Environmental and Resource Economics, 38, 433–446

Pittman, R. 1983. Multilateral Productivity Comparisons with Undesirable Outputs. The Economic Journal, 93, 883-891. Porter, M.E. 1991. America’s green Strategy. Scientific America 264, 168.

Porter, M.E., and C. van der Linde. 1995. Toward a New Conception of the Environment Competitiveness Relationship. Journal of Economic Perspectives 9, 97-118.

Powell, A.A., and F.H.G. Gruen. 1968. The Constant Elasticity of Transformation Production Frontier and Linear Supply System. International Economic Review, 9, 315-328.

Reinhard, S., C.A.K. Lowell, and G. Thijssen. 1999. Econometric Estimation of Technical and Environmental efficiency: An Application to Dutch Dairy Farms. American Journal of Agricultural Economics, 81, 44-60.

Reinhard, S., C.A.K. Lowell, and G. Thijssen. 2002. Analysis of Environmental Efficiency Variation. American Journal of Agricultural Economics, 84, 1054-1065.

Reinhard, S., and G. Thijssen. 2000. Nitrogen Efficiency of Dutch Dairy Farms: a Shadow Cost System Approach. European Review of Agricultural Economics, 27, 167-186.

Rodrıguez-Alvarez, A., I. del Rosal, and J. Banos-Pino. 2007. The Cost of Strikes in the Spanish Mining Sector: Modeling an Undesirable Input with a Distance Function. Journal of Productivity Analysis, 27, 73-83.

Rodrıguez-Alvarez, A., and C.A.K. Lovell. 2004. Excess Capacity and Expense Preference Behavior in National Health Systems: an Application to the Spanish Public Hospitals. Health Economics, 13, 157–169.

Roibas D. and C. Arias. 2004. Endogeneity Problems in the Estimation of Multi-output Technologies. Efficiency Series Paper 6/2004, University of Oviedo.

Schmidt, P., and C.A.K. Lovell. 1979. Estimating Technical and Allocative Inefficiency Relative to Stochastic Production and Cost Frontiers. Journal of Econometrics, 9, 343-366.

Timmer, C.P. 1971. Using a Probabilistic Frontier Production Function to Measure Technical Efficiency. Journal of Political Economy, 79, 776-794.