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Provision of an environmental output within a multi-output distance function approach

  • Areal, Francisco J
  • Tiffin, Richard
  • Balcombe, Kelvin

This paper redefines technical efficiency by incorporating provision of environmental goods as one of the outputs of the farm within a multi-outptut distance function framework. Permanent and rough grassland area are used as a proxy for the provision of environmental goods. The multi-output distance function approach is used to estimate technical efficiency. A Bayesian procedure involving the use of a Gibbs sampler is used to estimate the farm specific efficiency as well as the coefficients of the distance function. In addition, a number of explanatory variables for the efficiency were introduced in the analysis and posterior distributions of those were obtained. The methodology is applied to panel data on 215 dairy farms in England and Wales from the Defra Farm Business Survey. Results show that both farm efficiency rankings and determinants of inefficiency change when provision of environmental outputs by farms is incorporated in the efficiency analysis, which may have important political implications.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 25051.

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Date of creation: 2010
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Handle: RePEc:pra:mprapa:25051
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  1. Koop, G. & Osiewalski, J. & Steel, M. F. J., . "Bayesian efficiency analysis through individual effects: Hospital cost frontiers," CORE Discussion Papers RP -1245, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Stijn Reinhard & C. A. Knox Lovell & Geert Thijssen, 2002. "Analysis of Environmental Efficiency Variation," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(4), pages 1054-1065.
  3. O'Donnell, Christopher J. & Coelli, Timothy J., 2005. "A Bayesian approach to imposing curvature on distance functions," Journal of Econometrics, Elsevier, vol. 126(2), pages 493-523, June.
  4. van den Broeck, Julien & Koop, Gary & Osiewalski, Jacek & Steel, Mark F. J., 1994. "Stochastic frontier models : A Bayesian perspective," Journal of Econometrics, Elsevier, vol. 61(2), pages 273-303, April.
  5. Tauer, Loren W. & Belbase, Krishna P., 1987. "Technical Efficiency Of New York Dairy Farms," Northeastern Journal of Agricultural and Resource Economics, Northeastern Agricultural and Resource Economics Association, vol. 16(1), April.
  6. Glauben, Thomas & Lu, Wencong C. & Brümmer, Bernhard, 2003. "Policy Reform And Productivity Change In Chinese Agriculture: A Distance Function Approach," 2003 Annual Meeting, August 16-22, 2003, Durban, South Africa 25896, International Association of Agricultural Economists.
  7. Subal C. Kumbhakar & Gudbrand Lien & Ola Flaten & Ragnar Tveter�s, 2008. "Impacts of Norwegian Milk Quotas on Output Growth: A Modified Distance Function Approach," Journal of Agricultural Economics, Wiley Blackwell, vol. 59(2), pages 350-369, 06.
  8. Bernhard Br�mmer & 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.
  9. Andrew Barnes, 2008. "Technical Efficiency Estimates of Scottish Agriculture: A Note," Journal of Agricultural Economics, Wiley Blackwell, vol. 59(2), pages 370-376, 06.
  10. Stijn Reinhard & C.A. Knox Lovell & Geert Thijssen, 1999. "Econometric Estimation of Technical and Environmental Efficiency: An Application to Dutch Dairy Farms," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 44-60.
  11. Fernandez, Carmen & Koop, Gary & Steel, Mark, 2000. "A Bayesian analysis of multiple-output production frontiers," Journal of Econometrics, Elsevier, vol. 98(1), pages 47-79, September.
  12. Lansink, Alfons Oude & Reinhard, Stijn, 2004. "Investigating technical efficiency and potential technological change in Dutch pig farming," Agricultural Systems, Elsevier, vol. 79(3), pages 353-367, March.
  13. Fare, Rolf, et al, 1989. "Multilateral Productivity Comparisons When Some Outputs Are Undesirable: A Nonparametric Approach," The Review of Economics and Statistics, MIT Press, vol. 71(1), pages 90-98, February.
  14. Fernandez, Carmen & Koop, Gary & Steel, Mark F.J., 2005. "Alternative efficiency measures for multiple-output production," Journal of Econometrics, Elsevier, vol. 126(2), pages 411-444, June.
  15. Amani Omer & Unai Pascual & Noel P. Russell, 2007. "Biodiversity Conservation and Productivity in Intensive Agricultural Systems," Journal of Agricultural Economics, Wiley Blackwell, vol. 58(2), pages 308-329, 06.
  16. Hynes, Stephen & Farrelly, Niall & Murphy, Eithne & O'Donoghue, Cathal, 2008. "Modelling habitat conservation and participation in agri-environmental schemes: A spatial microsimulation approach," Ecological Economics, Elsevier, vol. 66(2-3), pages 258-269, June.
  17. Coelli, Tim & Perelman, Sergio, 1999. "A comparison of parametric and non-parametric distance functions: With application to European railways," European Journal of Operational Research, Elsevier, vol. 117(2), pages 326-339, September.
  18. KOOP, Gary & STEEL, Mark F. & OSIEWALSKI, Jacek, 1994. "Posterior Analysis of Stochastic Frontier Models using Gibbs Sampling," CORE Discussion Papers 1994061, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  19. 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.
  20. Rolf Färe & Shawna Grosskopf & Carl A Pasurka, Jr., 2001. "Accounting for Air Pollution Emissions in Measures of State Manufacturing Productivity Growth," Journal of Regional Science, Wiley Blackwell, vol. 41(3), pages 381-409.
  21. Dorfman, Jeffrey H. & Koop, Gary, 2005. "Current developments in productivity and efficiency measurement," Journal of Econometrics, Elsevier, vol. 126(2), pages 233-240, June.
  22. Fare, Rolf & Grosskopf, Shawna & Tyteca, Daniel, 1996. "An activity analysis model of the environmental performance of firms--application to fossil-fuel-fired electric utilities," Ecological Economics, Elsevier, vol. 18(2), pages 161-175, August.
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