Dynamic efficiency of German dairy farms under uncertainty. (2017)

• Record Type: Journal Article
• Authors: HÁ¼ttel, Silke; Narayana, Rashmi; Wagner, Christina; Odening, Martin
• Is Part Of: International journal of business performance management. Volume 18:Number 4(2017)
• Page Start: 427
• Page End: 458
• Publication Date: 2017
• Subjects: OR in agriculture -- dynamic efficiency -- uncertainty -- shadow cost -- technical and allocative efficiency; Industrial management -- Periodicals; 658.005
• Languages: English
• ISSNs: 1368-4892

Abstract

Output and price uncertainty determines the optimal allocation of variable inputs, and by the same token, firms' long-term adjustment of quasi-fixed factors. Dynamic efficiency measures, however, have thus far ignored uncertainty. To address this gap we present a model for dynamic efficiency measurement that combines a shadow cost approach with a stochastic dynamic cost-minimisation. We apply this model to western German dairy farm-level data from 1996-2010. We find that farms are more efficient in the long-run factor adjustment compared to the short-run, though they exhibit sensitivity to uncertainty. Neglecting uncertainty will overestimate average inefficiency and thus farms may appear seemingly inefficient.