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Measuring dynamic efficiency under uncertainty

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  • Huettel, Silke
  • Narayana, Rashmi
  • Odening, Martin

Abstract

In this paper we develop a theoretical model that links dynamic efficiency measurement and optimal investment under uncertainty. It is widely acknowledged that uncertainty has an impact on the optimal factor use of a profit maximizing firm. This is particularly true for the optimal adjustment of the firm’s capital stock. While uncertainty has been considered in the static efficiency measurement literature it has been ignored so far in the context of dynamic efficiency measurement. This paper targets at closing this gap. For that purpose we take up a dynamic efficiency model which embeds a stochastic intertemporal duality model into a shadow cost framework and allows for measuring technical and allocative inefficiency. We derive hypotheses on how uncertainty affects the measurement of efficiency. The factor demand equations, which we derive, may serve as a starting point for an empirical validation of these hypotheses.

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Bibliographic Info

Paper provided by Humboldt University Berlin, Department of Agricultural Economics in its series Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers with number 129062.

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Date of creation: Jun 2011
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Handle: RePEc:ags:huscpw:129062

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Related research

Keywords: efficiency; shadow cost approach; dynamic duality; uncertainty; Agribusiness; Agricultural and Food Policy; Agricultural Finance; Crop Production/Industries; Demand and Price Analysis; Farm Management; D61; D81; Q12;

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References

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Cited by:
  1. Wagner, Christina & Huttel, Silke & Odening, Martin, 2012. "Dynamic Efficiency Under Uncertainty: An Application To German Dairy Farms," 52nd Annual Conference, Stuttgart, Germany, September 26-28, 2012 133826, German Association of Agricultural Economists (GEWISOLA).

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