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The decomposition of cost inefficiency into technical and allocative components with panel data of Italian dairy farms

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  • OW Maietta

Abstract

This paper considers the decomposition of cost inefficiency into its technical and allocative components. First, the relevant literature is surveyed, showing that the shadow price approach has significant computational advantages over alternative procedures. To illustrate this approach, a shadow cost model is applied to a panel of dairy farms in Northern Italy, and cost inefficiency is decomposed into its technical and allocative components. The main results from this application are that the cost excess owing to inefficiency in the sample is on average 69 per cent, mainly as a result of technical inefficiency, and that allocative inefficiency relates to the under-utilisation of forage crops and of purchased feed with respect to hired labour. Copyright 2000, Oxford University Press.

Suggested Citation

  • OW Maietta, 2000. "The decomposition of cost inefficiency into technical and allocative components with panel data of Italian dairy farms," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 27(4), pages 473-495, December.
    • Handle: RePEc:oup:erevae:v:27:y:2000:i:4:p:473-495
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    Cited by:

    1. Juan José Díaz-Hernández, "undated". "Exact Allocative and Technical Inefficiency Using the Normalized Quadratic Cost System," Studies on the Spanish Economy 210, FEDEA.
    2. Rodriguez-Alvarez, Ana & Fernandez-Blanco, Victor & Lovell, C. A. Knox, 2004. "Allocative inefficiency and its cost:: The case of Spanish public hospitals," International Journal of Production Economics, Elsevier, vol. 92(2), pages 99-111, November.
    3. Brissimis, Sophocles N. & Delis, Manthos D. & Tsionas, Efthymios G., 2010. "Technical and allocative efficiency in European banking," European Journal of Operational Research, Elsevier, vol. 204(1), pages 153-163, July.
    4. Rodriguez, Xose Anton & Arias, Carlos, 2008. "The effects of resource depletion on coal mining productivity," Energy Economics, Elsevier, vol. 30(2), pages 397-408, March.
    5. Ang, Frederic & Oude Lansink, Alfons, 2014. "Dynamic profit inefficiency: a DEA application to Belgian dairy farms," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182649, European Association of Agricultural Economists.
    6. Pierani, Pierpaolo & Rizzi, Pier Luigi, 2003. "Technology and efficiency in a panel of Italian dairy farms: an SGM restricted cost function approach," Agricultural Economics, Blackwell, vol. 29(2), pages 195-209, October.
    7. Jerzy Marzec & Andrzej Pisulewski, 2015. "Analysis of the Economic Activity of Dairy Farms in Poland: Results obtained from the Short-run Cost Function," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 39, pages 167-182.
    8. Mosheim, Roberto & Lovell, C.A. Knox, 2006. "Economic Efficiency, Structure and Scale Economies in the U.S. Dairy Sector," 2006 Annual meeting, July 23-26, Long Beach, CA 21440, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    9. Juan Díaz-Hernández & Eduardo Martínez-Budría & Sergio Jara-Diaz, 2008. "Parametric estimation of inefficiency in cargo handling in Spanish ports," Journal of Productivity Analysis, Springer, vol. 30(3), pages 223-232, December.
    10. Frederic Ang & Alfons Oude Lansink, 2018. "Decomposing dynamic profit inefficiency of Belgian dairy farms," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 45(1), pages 81-99.
    11. Moreira, Victor H. & Bravo-Ureta, Boris E. & Dunner, Roberto & Vidal, Ricardo, 2012. "Total Factor Productivity Change in Dairy Production in Southern Chile: Is Farm Size Significant?," 2012 Conference, August 18-24, 2012, Foz do Iguacu, Brazil 126895, International Association of Agricultural Economists.
    12. Rungsuriyawiboon, Supawat & Zhang, Yanjie, 2018. "Examining the economic performance of Chinese farms: A dynamic efficiency and adjustment cost approach," Economic Analysis and Policy, Elsevier, vol. 57(C), pages 74-87.
    13. Alessandra Vaccaro & Ida Agosta & Alessandro Montelelone & Antonio Giampaolo & Dario Macaluso, 2021. "The use of FADN methodology to support the evaluation of business development plans in the RDP Sicily 2014-2020," Economia agro-alimentare, FrancoAngeli Editore, vol. 23(3), pages 1-26.
    14. Di­az-Hernández, Juan José & Marti­nez-Budri­a, Eduardo & Jara-Di­az, Sergio, 2008. "The effects of ignoring inefficiency in the analysis of production: The case of cargo handling in Spanish ports," Transportation Research Part A: Policy and Practice, Elsevier, vol. 42(2), pages 321-329, February.
    15. Boris Bravo-Ureta & Daniel Solís & Víctor Moreira López & José Maripani & Abdourahmane Thiam & Teodoro Rivas, 2007. "Technical efficiency in farming: a meta-regression analysis," Journal of Productivity Analysis, Springer, vol. 27(1), pages 57-72, February.
    16. Kumbhakar, Subal C. & Tsionas, Efthymios G., 2005. "Measuring technical and allocative inefficiency in the translog cost system: a Bayesian approach," Journal of Econometrics, Elsevier, vol. 126(2), pages 355-384, June.
    17. Kristin Roll, 2013. "Measuring performance, development and growth when restricting flexibility," Journal of Productivity Analysis, Springer, vol. 39(1), pages 15-25, February.
    18. Xiaoheng Zhang & Feng Chu & Xiaohua Yu & Yingheng Zhou & Xu Tian & Xianhui Geng & Jinyang Yang, 2017. "Changing Structure and Sustainable Development for China’s Hog Sector," Sustainability, MDPI, vol. 9(1), pages 1-15, January.
    19. Xiaoheng Zhang & Xiaohua Yu & Xu Tian & Xianhui Geng & Yingheng Zhou, 2019. "Farm size, inefficiency, and rice production cost in China," Journal of Productivity Analysis, Springer, vol. 52(1), pages 57-68, December.
    20. Huettel, Silke & Narayana, Rashmi & Odening, Martin, 2011. "Measuring dynamic efficiency under uncertainty," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 129062, Humboldt University Berlin, Department of Agricultural Economics.
    21. Mosbah, Ezzeddine & Zaibet, Lokman & Dharmapala, P. Sunil, 2020. "A new methodology to measure efficiencies of inputs (outputs) of decision making units in Data Envelopment Analysis with application to agriculture," Socio-Economic Planning Sciences, Elsevier, vol. 72(C).

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