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Investment Utilisation, Adjustment Costs, and Technical Efficiency in Danish Pig Farms

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Author Info

  • Jakob Vesterlund Olsen

    ()
    (Knowledge Centre for Agriculture, Aarhus (Denmark))

  • Arne Henningsen

    ()
    (Institute of Food and Resource Economics, University of Copenhagen)

Abstract

In this paper, we present a theoretical model for adjustment costs and investment utilisation that illustrates their causes and types and shows in which phases of an investment they occur. Furthermore, we develop an empirical framework for analysing the size and the timing of adjustment costs and investment utilisation. We apply this methodology to a large panel data set of Danish pig producers with 9,281 observations between 1996 and 2008. The paper further contributes with a thorough discussion of the calculation and deflation of capital input from microeconomic data. We estimate an output distance function as a stochastic frontier model and explain the estimated technical inefficiencies with lagged investments, farm size and age of the farmer. We allow for interaction effects between these variables and derive the formula for calculating the marginal effects on technical efficiency. The results show that investments have a negative effect on farm efficiency in the year of the investment and the year after accruing from adjustment costs. There is a large positive effect on efficiency two and three years after the investment. The farmer’s age and the farm size significantly influence technical efficiency, as well as the effect of investments on adjustment costs and investment utilisation. These results are robust to different ways of measuring capital.

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File URL: http://okonomi.foi.dk/workingpapers/WPpdf/WP2011/WP_2011_13_investment_utilisation_pig_farms.pdf
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Bibliographic Info

Paper provided by University of Copenhagen, Department of Food and Resource Economics in its series IFRO Working Paper with number 2011/13.

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Length: 31 pages
Date of creation: Oct 2011
Date of revision:
Handle: RePEc:foi:wpaper:2011_13

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Web page: http://www.ifro.ku.dk/
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Keywords: investment utilisation; adjustment costs; stochastic frontier analysis; technical efficiency; pig production; Denmark;

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Citations

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Cited by:
  1. Absalyamov, Davron, 2013. "Efficiency of wheat and cotton producing farms in Uzbekistan: a Stochastic Frontier Approach," International Conference and Young Researchers Forum - Natural Resource Use in Central Asia: Institutional Challenges and the Contribution of Capacity Building 159108, University of Giessen (JLU Giessen), Center for International Development and Environmental Research.
  2. Graziano Abrate & Federico Boffa & Fabrizio Erbetta & Davide Vannoni, 2013. "Corruption, Accountability and Efficiency. An Application to Municipal Solid Waste Services," Carlo Alberto Notebooks 316, Collegio Carlo Alberto.
  3. Shchetynin, Yevhenii & Nazrullaeva, Eugenia, 2012. "Effects of fixed capital investments on technical efficiency in food industry," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 28(4), pages 63-84.

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