Dynamic efficiency of German dairy farms under uncertainty

Silke Hüttel, Rashmi Narayana, Christina Wagner and Martin Odening

International Journal of Business Performance Management, 2017, vol. 18, issue 4, 427-458

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.

Keywords: OR in agriculture; dynamic efficiency; uncertainty; shadow cost; technical and allocative efficiency. (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ids:ijbpma:v:18:y:2017:i:4:p:427-458

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