Economic Efficiency of Ethanol Plants in the US North Central Region

Juan Sesmero (jsesmero@purdue.edu), Richard Perrin and Lilyan Fulginiti

No 61639, 2010 Annual Meeting, July 25-27, 2010, Denver, Colorado from Agricultural and Applied Economics Association

Abstract: In this study we use data envelopment analysis to decompose the overall economic efficiency of a sample of ethanol plants into three subcomponents: technical efficiency, allocative efficiency and a new component we call marketing efficiency. The relative importance of these sources of efficiency is of particular interest given the recent history of bankruptcies, plant closings and ownership change in the industry. Results reveal that observed production units are very efficient from a technical point of view as suggested by a standard deviation of 1% in technical efficiency. However, our results also show that bigger plants tend to be more economically efficient than others. The conventional methodology would have identified this difference as coming from allocative sources, i.e. bigger plants were correct in anticipating better relative prices and built more capacity accordingly. However introduction of a new concept we call marketing efficiency reveals that bigger production units obtain better relative prices (through marketing contracts) than smaller production units rather than anticipating prices more accurately. This might be a potential reason underlying the recent wave of mergers and acquisitions in the industry.

Keywords: Resource/Energy; Economics; and; Policy (search for similar items in EconPapers)
Pages: 30
Date: 2010
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea10:61639

DOI: 10.22004/ag.econ.61639

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