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

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

Abstract

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.

Suggested Citation

  • Areal, Francisco J & Tiffin, Richard & Balcombe, Kelvin, 2010. "Provision of an environmental output within a multi-output distance function approach," MPRA Paper 25051, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:25051
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    Cited by:

    1. Weltin, Meike & Hüttel, Silke, 2019. "Farm eco-efficiency: Can sustainable intensification make the difference?," FORLand Working Papers 10 (2019), Humboldt University Berlin, DFG Research Unit 2569 FORLand "Agricultural Land Markets – Efficiency and Regulation".
    2. Areal, Francisco J. & Jones, Philip J. & Mortimer, Simon R. & Wilson, Paul, 2018. "Measuring sustainable intensification: Combining composite indicators and efficiency analysis to account for positive externalities in cereal production," Land Use Policy, Elsevier, vol. 75(C), pages 314-326.
    3. Ang, Frederic & Oude Lansink, Alfons, 2014. "Dynamic profit inefficiency: a DEA application to Belgian dairy farms," 2014 International Congress, August 26-29, 2014, Ljubljana, Slovenia 182649, European Association of Agricultural Economists.
    4. Jerzy Marzec & Andrzej Pisulewski, 2015. "Analysis of the Economic Activity of Dairy Farms in Poland: Results obtained from the Short-run Cost Function," Collegium of Economic Analysis Annals, Warsaw School of Economics, Collegium of Economic Analysis, issue 39, pages 167-182.
    5. Lisandro Roco & Boris Bravo-Ureta & Alejandra Engler & Roberto Jara-Rojas, 2017. "The Impact of Climatic Change Adaptation on Agricultural Productivity in Central Chile: A Stochastic Production Frontier Approach," Sustainability, MDPI, Open Access Journal, vol. 9(9), pages 1-16, September.
    6. Czekaj, Tomasz G., 2015. "Measuring the Technical Efficiency of Farms Producing Environmental Output: Semiparametric Estimation of Multi-output Stochastic Ray Production Frontiers," 2015 Conference, August 9-14, 2015, Milan, Italy 211555, International Association of Agricultural Economists.
    7. Ang, Frederic & Mortimer, Simon & Areal, Francisco & Tiffin, Richard, 2015. "The Impact of Dynamic Profit Maximization on Biodiversity: A Network DEA Application to UK Cereal Farms," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205857, Agricultural and Applied Economics Association.
    8. Tomasz Gerard Czekaj, 2013. "Measuring the Technical Efficiency of Farms Producing Environmental Output: Parametric and Semiparametric Estimation of Multi-output Stochastic Ray Production Frontiers," IFRO Working Paper 2013/21, University of Copenhagen, Department of Food and Resource Economics.
    9. Barnes, Andrew Peter, 2012. "A method for constructing an index of sustainable intensification within the developed country context," Working Papers 131466, Scotland's Rural College (formerly Scottish Agricultural College), Land Economy & Environment Research Group.
    10. Jerzy Marzec & Andrzej Pisulewski, 2017. "The Effect of CAP Subsidies on the Technical Efficiency of Polish Dairy Farms," Central European Journal of Economic Modelling and Econometrics, Central European Journal of Economic Modelling and Econometrics, vol. 9(3), pages 243-273, September.
    11. Frederic Ang & Simon M. Mortimer & Francisco J. Areal & Richard Tiffin, 2018. "On the Opportunity Cost of Crop Diversification," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(3), pages 794-814, September.

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    More about this item

    Keywords

    Technical efficiency; environmental good; multi-output;
    All these keywords.

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General

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