Technical efficiency and impact of environmental regulations in farrow‐to‐finish swine production in Taiwan

This article demonstrates how technical efficiency and the impact of environmental regulations of Taiwanese farrow‐to‐finish swine production can be estimated in the presence of undesirable outputs. The issue of measuring technical efficiencies while considering undesirable outputs has been addressed by past studies. But the proper method of including undesirable outputs has always been a subject of debate. This article develops a data envelopment analysis (DEA)‐based model that includes undesirable outputs. The technologies of desirable output production and undesirable output control are considered simultaneously. This allows one to transform undesirable output into desirable output, whereby a traditional Shephard distance function can be used to measure technical efficiencies. An approach to measuring the impacts due to environmental regulations is then derived. Empirical results show that larger farms are more technically efficient than small‐sized farms, but no clear conclusions can be reached for the measures of regulatory impact among farms with different sizes. On average, the sample farms incurred an opportunity cost due to environmental regulations equivalent to 9.8% of market value. Opportunity costs rise with efficiency.