IDEAS home Printed from https://ideas.repec.org/p/ags/huscpw/129062.html
   My bibliography  Save this paper

Measuring dynamic efficiency under uncertainty

Author

Listed:
  • 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.

Suggested Citation

  • 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.
    • Handle: RePEc:ags:huscpw:129062
    DOI: 10.22004/ag.econ.129062
    as

    Download full text from publisher

    File URL: https://ageconsearch.umn.edu/record/129062/files/wp10-pdf-A-1b-RGB.pdf
    Download Restriction: no
    File URL: https://libkey.io/10.22004/ag.econ.129062?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Pierre Ouellette & Li Yan, 2008. "Investment and dynamic DEA," Journal of Productivity Analysis, Springer, vol. 29(3), pages 235-247, June.
    2. Christopher O’Donnell & Robert Chambers & John Quiggin, 2010. "Efficiency analysis in the presence of uncertainty," Journal of Productivity Analysis, Springer, vol. 33(1), pages 1-17, February.
    3. C. J. O'Donnell & W. E. Griffiths, 2006. "Estimating State-Contingent Production Frontiers," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(1), pages 249-266.
    4. Lau, Lawrence J & Yotopoulos, Pan A, 1971. "A Test for Relative Efficiency and Application to Indian Agriculture," American Economic Review, American Economic Association, vol. 61(1), pages 94-109, March.
    5. Atkinson, Scott E & Cornwell, Christopher, 1994. "Parametric Estimation of Technical and Allocative Inefficiency with Panel Data," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 231-243, February.
    6. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    7. Nauges, Celine & O'Donnell, Christopher J. & Quiggin, John C., 2009. "Uncertainty and technical efficiency in Finnish Agriculture," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 48062, Australian Agricultural and Resource Economics Society.
    8. Abel, Andrew B & Eberly, Janice C, 1994. "A Unified Model of Investment under Uncertainty," American Economic Review, American Economic Association, vol. 84(5), pages 1369-1384, December.
    9. Rungsuriyawiboon, Supawat & Stefanou, Spiro E., 2007. "Dynamic Efficiency Estimation: An Application to U.S. Electric Utilities," Journal of Business & Economic Statistics, American Statistical Association, vol. 25, pages 226-238, April.
    10. Demsetz, Harold, 1973. "Industry Structure, Market Rivalry, and Public Policy," Journal of Law and Economics, University of Chicago Press, vol. 16(1), pages 1-9, April.
    11. Robert G. Chambers & John Quiggin, 2002. "The State-Contingent Properties of Stochastic Production Functions," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(2), pages 513-526.
    12. Caudill, Steven B. & Ford, Jon M., 1993. "Biases in frontier estimation due to heteroscedasticity," Economics Letters, Elsevier, vol. 41(1), pages 17-20.
    13. Oude Lansink, Alfons G.J.M. & Silva, Elvira, 2006. "Dynamic Efficiency Analysis using a Directional Distance Function," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25771, International Association of Agricultural Economists.
    14. Gardebroek, Cornelis & Oude Lansink, Alfons G.J.M., 2008. "Dynamic Microeconometric Approaches To Analysing Agricultural Policy," 107th Seminar, January 30-February 1, 2008, Sevilla, Spain 6592, European Association of Agricultural Economists.
    15. Sandri, Serena & Schade, Christian & Mußhoff, Oliver & Odening, Martin, 2010. "Holding on for too long? An experimental study on inertia in entrepreneurs' and non-entrepreneurs' disinvestment choices," Journal of Economic Behavior & Organization, Elsevier, vol. 76(1), pages 30-44, October.
    16. Kumbhakar, Sabul C., 1993. "Production risk, technical efficiency, and panel data," Economics Letters, Elsevier, vol. 41(1), pages 11-16.
    17. Bernhard Brümmer & Thomas Glauben & Geert Thijssen, 2002. "Decomposition of Productivity Growth Using Distance Functions: The Case of Dairy Farms in Three European Countries," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(3), pages 628-644.
    18. G. Battese & A. Rambaldi & G. Wan, 1997. "A Stochastic Frontier Production Function with Flexible Risk Properties," Journal of Productivity Analysis, Springer, vol. 8(3), pages 269-280, August.
    19. Elvira Silva & Spiro E. Stefanou, 2007. "Dynamic Efficiency Measurement: Theory and Application," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 89(2), pages 398-419.
    20. Jan Hinrichs & Oliver Musshoff & Martin Odening, 2008. "Economic hysteresis in hog production," Applied Economics, Taylor & Francis Journals, vol. 40(3), pages 333-340.
    21. Daniel S. Hamermesh & Gerard A. Pfann, 1996. "Adjustment Costs in Factor Demand," Journal of Economic Literature, American Economic Association, vol. 34(3), pages 1264-1292, September.
    22. Jean-Paul Chavas, 2008. "On the economics of agricultural production ," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 52(4), pages 365-380, December.
    23. Jean-Paul Chavas, 2008. "A Cost Approach to Economic Analysis Under State-Contingent Production Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 90(2), pages 435-466.
    24. Kyösti S. Pietola & Robert J. Myers, 2000. "Investment under Uncertainty and Dynamic Adjustment in the Finnish Pork Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 956-967.
    25. Kumbhakar, Subal C., 1990. "Production frontiers, panel data, and time-varying technical inefficiency," Journal of Econometrics, Elsevier, vol. 46(1-2), pages 201-211.
    26. Hung-Jen Wang, 2002. "Heteroscedasticity and Non-Monotonic Efficiency Effects of a Stochastic Frontier Model," Journal of Productivity Analysis, Springer, vol. 18(3), pages 241-253, November.
    27. Elvira Silva & Spiro Stefanou, 2003. "Nonparametric Dynamic Production Analysis and the Theory of Cost," Journal of Productivity Analysis, Springer, vol. 19(1), pages 5-32, January.
    28. Subal C. Kumbhakar, 2002. "Specification and Estimation of Production Risk, Risk Preferences and Technical Efficiency," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 8-22.
    29. Larry G. Epstein, 1981. "Duality Theory and Functional Forms for Dynamic Factor Demands," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 48(1), pages 81-95.
    30. Nemoto, Jiro & Goto, Mika, 1999. "Dynamic data envelopment analysis: modeling intertemporal behavior of a firm in the presence of productive inefficiencies," Economics Letters, Elsevier, vol. 64(1), pages 51-56, July.
    31. Ellen Goddard & Alfons Weersink & Kevin Chen & Calum G. Turvey, 1993. "Economics of Structural Change in Agriculture," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 41(4), pages 475-489, December.
    32. Epstein, Larry G & Denny, Michael G S, 1983. "The Multivariate Flexible Accelerator Model: Its Empirical Restrictions and an Application to U.S. Manufacturing," Econometrica, Econometric Society, vol. 51(3), pages 647-674, May.
    33. Stefanou, Spiro E., 1989. "Learning, experience, and firm size," Journal of Economics and Business, Elsevier, vol. 41(4), pages 283-296, November.
    34. Roberto Mosheim & C.A. Knox Lovell, 2007. "Scale Economies and Inefficiency of U.S. Dairy Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 91(3), pages 777-794.
    35. 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.
    36. Kumbhakar,Subal C. & Lovell,C. A. Knox, 2003. "Stochastic Frontier Analysis," Cambridge Books, Cambridge University Press, number 9780521666633, September.
    37. Silke Hüttel & Oliver Mußhoff & Martin Odening, 2010. "Investment reluctance: irreversibility or imperfect capital markets?," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 37(1), pages 51-76, March.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Supawat Rungsuriyawiboon & Heinrich Hockmann, 2015. "Adjustment costs and efficiency in Polish agriculture: a dynamic efficiency approach," Journal of Productivity Analysis, Springer, vol. 44(1), pages 51-68, August.
    2. Joselyne Najera & Paula Arzadun & Monica Navarro & Martin Solis, 2018. "High-Quality Input Choice under Uncertainty and Ambiguity: An Exploratory Study of Costa Rica's Coffee Sector," Journal of Economics and Behavioral Studies, AMH International, vol. 10(5), pages 156-166.
    3. Pieralli, Simone & Hüttel, Silke & Odening, Martin, 2013. "A model of firm exit under inefficiency and uncertainty," Structural Change in Agriculture/Strukturwandel im Agrarsektor (SiAg) Working Papers 155700, Humboldt University Berlin, Department of Agricultural Economics.
    4. 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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Stefanou, Spiro E., 2009. "A Dynamic Characterization of Efficiency," Agricultural Economics Review, Greek Association of Agricultural Economists, vol. 10(1), pages 1-16.
    2. Silva, Elvira & Lansink, Alfons Oude & Stefanou, Spiro E., 2015. "The adjustment-cost model of the firm: Duality and productive efficiency," International Journal of Production Economics, Elsevier, vol. 168(C), pages 245-256.
    3. Orea, Luis, 2019. "The Econometric Measurement of Firms’ Efficiency," Efficiency Series Papers 2019/02, University of Oviedo, Department of Economics, Oviedo Efficiency Group (OEG).
    4. Frederic Ang & Pieter Jan Kerstens, 2023. "Robust nonparametric analysis of dynamic profits, prices and productivity: An application to French meat-processing firms," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 50(2), pages 771-809.
    5. Gardebroek, Cornelis & Oude Lansink, Alfons G.J.M., 2008. "Dynamic Microeconometric Approaches To Analysing Agricultural Policy," 107th Seminar, January 30-February 1, 2008, Sevilla, Spain 6592, European Association of Agricultural Economists.
    6. Céline Nauges & Christopher J. O'Donnell & John Quiggin, 2011. "Uncertainty and technical efficiency in Finnish agriculture: a state-contingent approach," European Review of Agricultural Economics, Oxford University Press and the European Agricultural and Applied Economics Publications Foundation, vol. 38(4), pages 449-467, October.
    7. Jean Joseph Minviel & Timo Sipiläinen, 2018. "Dynamic stochastic analysis of the farm subsidy-efficiency link: evidence from France," Journal of Productivity Analysis, Springer, vol. 50(1), pages 41-54, October.
    8. Lansink, Alfons Oude & Stefanou, Spiro & Serra, Teresa, 2015. "Primal and dual dynamic Luenberger productivity indicators," European Journal of Operational Research, Elsevier, vol. 241(2), pages 555-563.
    9. Elvira Silva & Alfons Oude Lansink, 2013. "Dynamic Efficiency Measurement: A Directional Distance Function Approach," CEF.UP Working Papers 1307, Universidade do Porto, Faculdade de Economia do Porto.
    10. Saeideh Fallah-Fini & Konstantinos Triantis & Andrew Johnson, 2014. "Reviewing the literature on non-parametric dynamic efficiency measurement: state-of-the-art," Journal of Productivity Analysis, Springer, vol. 41(1), pages 51-67, February.
    11. Moro, Daniele & Sckokai, Paolo, 2013. "The impact of decoupled payments on farm choices: Conceptual and methodological challenges," Food Policy, Elsevier, vol. 41(C), pages 28-38.
    12. Ihli, Hanna Julia & Gassner, Anja & Musshoff, Oliver, 2018. "Experimental insights on the investment behavior of small-scale coffee farmers in central Uganda under risk and uncertainty," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 75(C), pages 31-44.
    13. 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.
    14. Aparicio, Juan & Kapelko, Magdalena, 2019. "Accounting for slacks to measure dynamic inefficiency in data envelopment analysis," European Journal of Operational Research, Elsevier, vol. 278(2), pages 463-471.
    15. Ihli, Hanna Julia & Maart, Syster Christin & Musshoff, Oliver, 2012. "Investment and Disinvestment in Irrigation Technology – An Experimental Analysis of Farmers’ Decision Behavior –," 2012 Annual Meeting, August 12-14, 2012, Seattle, Washington 124532, Agricultural and Applied Economics Association.
    16. Nauges, Celine & O'Donnell, Christopher J. & Quiggin, John C., 2009. "Uncertainty and technical efficiency in Finnish Agriculture," 2009 Conference (53rd), February 11-13, 2009, Cairns, Australia 48062, Australian Agricultural and Resource Economics Society.
    17. Tsionas, Mike & Patel, Pankaj C. & Guedes, Maria João, 2022. "Endogenous efficiency of the dynamic profit maximization in the intertemporal production models of venture behavior," International Journal of Production Economics, Elsevier, vol. 246(C).
    18. 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.
    19. Serra, Teresa & Oude Lansink, Alfons, 2014. "Measuring the impacts of production risk on technical efficiency: A state-contingent conditional order-m approach," European Journal of Operational Research, Elsevier, vol. 239(1), pages 237-242.
    20. Theodoros Skevas & Teresa Serra, 2016. "The role of pest pressure in technical and environmental inefficiency analysis of Dutch arable farms: an event-specific data envelopment approach," Journal of Productivity Analysis, Springer, vol. 46(2), pages 139-153, December.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ags:huscpw:129062. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: AgEcon Search (email available below). General contact details of provider: https://edirc.repec.org/data/iahubde.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.