Assessing the Productivity Consequences of Agri-Environmental Practices When Adoption Is Endogenous

Aj A. Bostian, Moriah B. Bostian, Marita Laukkanen and Antti Simola

No 112, Working Papers from VATT Institute for Economic Research

Abstract: We address the general problem of selection bias, endemic to analyzing the effects of any policy where adoption is voluntary, with empirical application to environmental policies for agriculture. Many voluntary practices for mitigating the environmental impacts of agriculture provide external benefits while lowering productivity. Policy analysis of the productivity consequences is complicated by the fact that decision-makers can choose their own policy levers, an action that ruins any notion of random assignment. We introduce an identification strategy to correct this kind of endogeneity, combining classic methods from stochastic frontier analysis and selection models. Applying it to micro-level data from Finnish grain farms, we find that more efficient producers are more likely to enroll in subsidized practices. And, because these practices tend to reduce yield, frontier analysis without the endogeneity correction greatly understates productivity losses. In other words, naively basing the frontier estimator on the subset of less productive farms leads to downward bias in the resulting frontier estimates. In fact, average inefficiency more than doubles after the correction in this case. An outlier investigation also suggests that the lowest decile of farms are responsible for most of the selection bias in the uncorrected model.

Keywords: productivity; stochastic frontier analysis; endogeneity; selection model; agri-environmental policy; Environment; energy and climate policy; Q53; Q58; Q18; Q12; D24; C54; C34; C36; Energia; ilmasto ja ympäristö (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-agr, nep-eff and nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.doria.fi/handle/10024/165234

Related works:
Journal Article: Assessing the productivity consequences of agri-environmental practices when adoption is endogenous (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fer:wpaper:112

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Papers from VATT Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Anita Niskanen ().