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Impact of Financial Variables on Production in Kansas Farms Efficiencies

  • Andreu, Monica Lopez
  • Featherstone, Allen M.
  • Langemeier, Michael R.
  • Grunewald, Orlen C.

This article establishes the cost-efficiency frontier and its variation over time for a sample of 610 farms in Kansas for ten consecutive years, from 1995 to 2004. The primary objective consists of examining how financially constrained firms affect cost efficiency and its components, allocative, technical and scale efficiency. Using a sample from the Kansas Farm Management Association and data envelopment analysis (DEA) technique, each farm is measured against the rest of the sample to calculate the cost efficiency frontier and other measures of efficiency per year. Two DEA financially constrained models, constrained by solvency and level of debt of the firms respectively, are compared to the basic one in which firms are non-constrained. We test whether the debt and solvency constraints are binding, and how much and in which direction they affect the level of cost efficiency, technical efficiency, allocative efficiency, and scale efficiency. Results for the farms and period studied show that financial constraints do not impede farms from achieving their level of cost efficiency. However, in the presence of financial constraints, farms'’ level of technical efficiency decreases whereas their level of allocative efficiency increases.

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File URL: http://purl.umn.edu/21406
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Paper provided by American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association) in its series 2006 Annual meeting, July 23-26, Long Beach, CA with number 21406.

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Date of creation: 2006
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Handle: RePEc:ags:aaea06:21406
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  16. Catherine J. Morrison Paul & Warren E. Johnston & Gerald A. G. Frengley, 2000. "Efficiency in New Zealand Sheep and Beef Farming: The Impacts of Regulatory Reform," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 325-337, May.
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