Measuring Dynamic Efficiency under Uncertainty: An Application to German Dairy Farms

The existing literature on dynamic efficiency is deterministic and ignores uncertainty when deriving dynamic efficiency measures, even though it is known that uncertainty affects the optimal adjustment path and the optimal use of quasi-fixed factors. Here, we contribute to closing this gap by developing a model that takes the dynamic efficiency measurement and the optimal investment under uncertainty jointly into consideration. We apply this model to German farm-level panel data to investigate whether West German dairy farms use their variable and quasi-fixed factors in a technically and allocative efficient way in the long run, and to explore the role of uncertainty within the optimal factor allocation process. We find empirical evidence for the importance of considering uncertainty when deriving (dynamic) efficiency measures: neglecting uncertainty within the estimation procedure will overestimate the average inefficiency score. This is not only interesting from an academic point of view; it has further implications for the analysis of the relative performance of specific farm types like cash crop or other livestock farms.

Issue Date:
Publication Type:
Conference Paper/ Presentation
DOI and Other Identifiers:
#2397 (Other)
Record Identifier:
PURL Identifier:
Total Pages:
JEL Codes:
D61; D81; Q12

 Record created 2017-04-01, last modified 2018-01-22

Download fulltext

Rate this document:

Rate this document:
(Not yet reviewed)