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The Economic Costs of Environmental Regulation in U.S. Dairy Farming: A Directional Distance Function Approach

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  • Eric Njuki
  • Boris E. Bravo-Ureta

Abstract

Analyses of the costs of regulating greenhouse gas emissions from dairy production, which could be used to assess the effectiveness of alternative policy measures, is a missing link in the literature. This article addresses this gap by establishing the economic impact associated with a hypothetical greenhouse gas environmental regulatory regime across major dairy producing counties in the United States. In doing so, the article makes three important contributions to the literature. First, it develops a comprehensive pollution index based on Environmental Protection Agency methodologies, which contrasts with previous studies that rely on partial measures based only on surplus nitrogen stemming from the over-application of fertilizer. Second, the article uses a directional output distance function, an approach that has not been employed previously to evaluate polluting technologies in the U.S. dairy sector. Third, the article incorporates a four-way error approach that accounts for unobserved county heterogeneity, time-invariant persistent technical efficiency, time-varying transient technical efficiency, and a random error. The results indicate that regulating greenhouse gas emissions from dairy farming would induce a 5-percentage point increase in average technical efficiency. In addition, the economic costs of implementing this hypothetical regulatory framework exhibit significant spatial variation across counties in the United States.

Suggested Citation

  • Eric Njuki & Boris E. Bravo-Ureta, 2015. "The Economic Costs of Environmental Regulation in U.S. Dairy Farming: A Directional Distance Function Approach," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 97(4), pages 1087-1106.
  • Handle: RePEc:oup:ajagec:v:97:y:2015:i:4:p:1087-1106.
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    File URL: http://hdl.handle.net/10.1093/ajae/aav007
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    Cited by:

    1. Richard T. Melstrom, 2021. "The Effect of Land Use Restrictions Protecting Endangered Species on Agricultural Land Values," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(1), pages 162-184, January.
    2. Dakpo, K Hervé & Lansink, Alfons Oude, 2019. "Dynamic pollution-adjusted inefficiency under the by-production of bad outputs," European Journal of Operational Research, Elsevier, vol. 276(1), pages 202-211.
    3. Ke Wang & Yujiao Xian & Chia-Yen Lee & Yi-Ming Wei & Zhimin Huang, 2019. "On selecting directions for directional distance functions in a non-parametric framework: a review," Annals of Operations Research, Springer, vol. 278(1), pages 43-76, July.
    4. Sushama Murty & R. Robert Russell, "undated". "Bad Outputs," Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi Discussion Papers 17-06, Centre for International Trade and Development, Jawaharlal Nehru University, New Delhi, India.
    5. Jianglong Li & Boqiang Lin, 2016. "Green Economy Performance and Green Productivity Growth in China’s Cities: Measures and Policy Implication," Sustainability, MDPI, vol. 8(9), pages 1-21, September.
    6. Wallander, Steven & Maguire, Kelly B., 2020. "The Costs of Environmental Regulation of the U.S. Agricultural Sector," 2020 Annual Meeting, July 26-28, Kansas City, Missouri 304400, Agricultural and Applied Economics Association.
    7. Eric Njuki & Boris E Bravo-Ureta & Víctor E Cabrera, 2020. "Climatic effects and total factor productivity: econometric evidence for Wisconsin dairy farms," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 47(3), pages 1276-1301.
    8. Lukáš Čechura & Zdeňka Žáková Kroupová, 2021. "Technical Efficiency in the European Dairy Industry: Can We Observe Systematic Failures in the Efficiency of Input Use?," Sustainability, MDPI, vol. 13(4), pages 1-19, February.
    9. Fangqing Wei & Junfei Chu & Jiayun Song & Feng Yang, 2019. "A cross-bargaining game approach for direction selection in the directional distance function," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 41(3), pages 787-807, September.
    10. Boris E. Bravo‐Ureta & Víctor H. Moreira & Javier L. Troncoso & Alan Wall, 2020. "Plot‐level technical efficiency accounting for farm‐level effects: Evidence from Chilean wine grape producers," Agricultural Economics, International Association of Agricultural Economists, vol. 51(6), pages 811-824, November.
    11. Engida, Tadesse Getacher & Rao, Xudong & Oude Lansink, Alfons G.J.M., 2020. "A dynamic by-production framework for analyzing inefficiency associated with corporate social responsibility," European Journal of Operational Research, Elsevier, vol. 287(3), pages 1170-1179.
    12. Eric Njuki & Boris E Bravo-Ureta & Christopher J O’Donnell, 2018. "A new look at the decomposition of agricultural productivity growth incorporating weather effects," PLOS ONE, Public Library of Science, vol. 13(2), pages 1-21, February.
    13. Le, Stephanie & Jeffrey, Scott R. & An, Henry, 2017. "Greenhouse gas emissions and productive efficiency in Alberta dairy production: What are the trade-offs?," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 258487, Agricultural and Applied Economics Association.
    14. Latruffe, Laure & Dakpo, K Hervé & Desjeux, Yann & Justinia Hanitravelo, Giffona, 2017. "Effect of subsidies on technical efficiency excluding or including environmental outputs: An illustration with a sample of farms in the European Union," Working Papers 266259, Institut National de la recherche Agronomique (INRA), Departement Sciences Sociales, Agriculture et Alimentation, Espace et Environnement (SAE2).
    15. Riera, Félix Sebastián & Brümmer, Bernhard, 2022. "Environmental efficiency of wine grape production in Mendoza, Argentina," Agricultural Water Management, Elsevier, vol. 262(C).
    16. Zdeňka Žáková Kroupová & Gabriela Trnková & Monika Roman, 2022. "Is Market Power or Efficiency behind Economic Performance? The Case of the Czech Food Processing Industry," Economies, MDPI, vol. 10(9), pages 1-22, September.
    17. Shuai Chen & Chen Ji & Songqing Jin, 2022. "Costs of an environmental regulation in livestock farming: Evidence from pig production in rural China," Journal of Agricultural Economics, Wiley Blackwell, vol. 73(2), pages 541-563, June.
    18. Wei Huang & Bernhard Bruemmer, 2017. "Balancing economic revenue and grazing pressure of livestock grazing on the Qinghai–Tibetan–Plateau," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 61(4), pages 645-662, October.
    19. Lukáš Čechura & Zdeňka Žáková Kroupová & Antonella Samoggia, 2021. "Drivers of Productivity Change in the Italian Tomato Food Value Chain," Agriculture, MDPI, vol. 11(10), pages 1-17, October.
    20. West, Steele, 2021. "The Estimation of Farm Business Inefficiency in the Presence of Debt Repayment," 2021 Conference, August 17-31, 2021, Virtual 315048, International Association of Agricultural Economists.

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