A Reduced‐Form Model for Dynamic Efficiency Measurement: Application to Dairy Farms in Germany and The Netherlands

Emvalomatis, Grigorios; Stefanou, Spiro E.; Lansink, A.G.J.M. Oude

doi:10.1093/ajae/aaq125

Cited by 61 publications

(66 citation statements)

References 23 publications

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“…The other 44% of farms are found to be scale-efficient, i.e., they operate at unitary constant returns to scale. Our findings are generally consistent with earlier results reported in Brümmer et al (2002) and Emvalomatis et al (2011) who also document the evidence of increasing returns to scale among Dutch dairy farms, although no previous study reports farm-level estimates of scale economies providing only average estimates thereof.…”

Section: Returns To Scalesupporting

confidence: 92%

“…Our average estimate of technical change falls in the middle between those reported for Dutch dairy farms by earlier studies that do not account for the by-production of undesirable outputs. For instance, Brümmer et al (2002) report the average annual rate of technical progress of 0.53% in 1991-1994, whereas Emvalomatis et al (2011) report the rate of 1.25% per annum in 1995-2005. 7 We find that Model (II) reports slightly lower estimates of technical advancement than does our preferred hedonic-output-index-based model.…”

Section: Technical Change Decompositionmentioning

confidence: 99%

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A hedonic-output-index-based approach to modeling polluting technologies

2016

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Despite some recent criticisms, the conventional radial distance function, which treats undesirable by-products as either frontier shifters or inputs, remains a popular go-to formulation of polluting production processes among practitioners. This unfading popularity is arguably driven by the ability of radial distance functions, unlike alternative directional distance functions, to allow for unit-free multiplicative changes in arguments as well as, by implicitly postulating the radial direction, to free researchers from the dilemma of having to explicitly choose the directional vector. In this paper, we offer a generalization of the standard radial distance function to polluting technologies that can accommodate undesirable by-products in a more economically meaningful way. Specifically, we propose modeling undesirable outputs via a hedonic output index, which is meant to ensure that pollutants are treated as outputs, as opposed to inputs or theoretically unregulated frontier shifters, while also recognizing their undesirable nature. By using a radial input distance function generalized to encompass an (unobservable) hedonic output index of desirable and undesirable outputs, we are able to meaningfully describe relationships between different products (including the complementarity of desirable and undesirable outputs) within producible output sets as well as to represent technically feasible polluting production possibilities given inputs. An empirical application of our methodology to the case of Dutch dairy farms in 2001-2009 demonstrates the complexity of interactions between outputs, thereby attesting to the value of more elaborate representations of production possibilities.

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Section: Returns To Scalesupporting

confidence: 92%

Section: Technical Change Decompositionmentioning

confidence: 99%

A hedonic-output-index-based approach to modeling polluting technologies

2016

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“…Emvalomatis et al . () and Emvalomatis () provide estimates for the long‐run efficiency scores assuming that all firms reach a common long‐run efficiency level. In contrast, the study of Galán et al .…”

Section: Literature Reviewmentioning

confidence: 99%

Heterogeneity of Long‐run Technical Efficiency of German Dairy Farms: A Bayesian Approach^*

Skevas¹,

Emvalomatis²,

Brümmer³

2017

J Agricultural Economics

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In parametric efficiency studies, two alternative approaches exist to provide an estimate of the long-run efficiency of firms: the dynamic stochastic frontier model and the generalised true random-effects model. We extend the former in order to allow for heterogeneity in the long-run technical efficiency of firms. This model is based on potential differences in firm-specific characteristics and in firms' inefficiency persistence. The model is applied to an unbalanced micro-panel of German dairy farms over the period 1999 to 2009. Estimation of long-run technical efficiency and inefficiency persistence is based on an output distance function representation of the production technology and estimated in a Bayesian framework. The results suggest that heterogeneity in long-run technical efficiency of farms is mostly attributed to discrepancies in farm-specific factors rather than differences in farms' inefficiency persistence. Farm size is positively related to long-run technical efficiency while subsidies exert a negative effect on the long-run technical efficiency of farms. Inefficiency persistence is found to be very high, but heterogeneity in this persistence is low.

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“…Although the studies might provide approximation for the dynamic of inefficiencies, the specifications are arbitrary approximations with little theoretical justifications. Many researchers aim to provide some economic interpretations regarding the dynamic patterns using an AR(1) process (see Ahn and Sickles (2000), Emvalomatis et al (2011) and Tsionas (2006)). Ahn and Sickles (2000) propose an AR(1) of an technical inefficiency as follows u it = ρu it−1 + ζ it , where 0 < ρ < 1 measures a firm's ability to adjust its past period inefficiency level.…”

Section: The Modelmentioning

confidence: 99%

“…Ahn and Sickles (2000) propose an AR(1) of an technical inefficiency as follows u it = ρu it−1 + ζ it , where 0 < ρ < 1 measures a firm's ability to adjust its past period inefficiency level. Ahn and Sickles (2000) and Emvalomatis et al (2011) models are not designed for incorporating the variables affecting inefficiency, while Tsionas (2006) does. Our model specification differs from Tsionas's (2006) in the sense that the base inefficiencies are not identical across DMUs, and the effects of environmental variables are not time-invariant and the same across DMUs.…”

Section: The Modelmentioning

confidence: 99%

Model specification, estimation and inference in studying economic output

Dung¹

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The first aim of this thesis is to expand a range of econometric models available to investigate the behaviours and the drivers of economic output (e.g. real Gross Domestic Product (GDP)), labour productivity growth (real GDP per capita)). The second aim is to develop algorithms to estimate the proposed models. The third aim is to develop an inferential framework for each proposed model.Chapter 2 generalises some of the existing methods to account for statistical noise in the estimation of a frontier, and to gain new insights on the drivers of labour productivity growth. We apply the model specification to the data set used in Kumar and Russell (The American Economic Review, 2002). We confirm that capital deepening is the main source of labour productivity growth, and also is the factor driving the transformation of the distribution of labour productivity from one single mode density to a density of two modes. When accounting for statistical noise in the estimation of the frontier, we find that capital deepening does not contribute to growth convergence, but instead efficiency change is a driver of growth convergence. The results indicate that improving technical efficiencies might reduce the gap between the poor and the rich.Chapter 3 proposes a non-linear state space stochastic frontier model which provides a researcher a tool to jointly model the dynamic effects of environmental variables on both a production function and an inefficiency term. A test for time-variation in technical inefficiencies is also provided. We apply the proposed model to the economic study of 21 OECD countries. We wish to investigate under what channels foreign direct investment (FDI) affects a production process: through a production function, an inefficiency term, or both. The results show that FDI plays more important role in influencing the shift of the production frontier rather than the distribution of technical inefficiencies. This is to suggest that an output growth of an economy might further increase by investing FDI in innovation to improve technological change (shift of the frontier). We find statistical evidence in favour of time-variation in technical inefficiencies, and the temporal effect therefore should not be ignored in measuring technical inefficiencies.Chapter 4 considers an econometric model where interdependent relationships between GDP and other key macroeconomic variables are allowed. We achieve impulse response functions of some key macroeconomic variables from a large VAR model with 119 variables. The precision of estimating a such large VAR model is obtained by using a dimension reduction approach, namely a reduced rank regression which has a specification independent to the order of the variables. The impulse responses of a selection of macroeconomic variables to a contractionary monetary policy have expected sign. For instance, a contractionary monetary policy is followed.i by a decrease in GDP, price level and an increase in unemployment rate. The results support the conventional channel of the e...

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A Reduced‐Form Model for Dynamic Efficiency Measurement: Application to Dairy Farms in Germany and The Netherlands

Cited by 61 publications

References 23 publications

A hedonic-output-index-based approach to modeling polluting technologies

A hedonic-output-index-based approach to modeling polluting technologies

Heterogeneity of Long‐run Technical Efficiency of German Dairy Farms: A Bayesian Approach^*

Model specification, estimation and inference in studying economic output

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A Reduced‐Form Model for Dynamic Efficiency Measurement: Application to Dairy Farms in Germany and The Netherlands

Cited by 61 publications

References 23 publications

A hedonic-output-index-based approach to modeling polluting technologies

A hedonic-output-index-based approach to modeling polluting technologies

Heterogeneity of Long‐run Technical Efficiency of German Dairy Farms: A Bayesian Approach*

Model specification, estimation and inference in studying economic output

Contact Info

Product

Resources

About

Heterogeneity of Long‐run Technical Efficiency of German Dairy Farms: A Bayesian Approach^*