Traditional measures of agricultural productivity only incorporate those inputs and outputs that are recorded in market transactions. However, such measures do not account for externalities such as environmental damage. This study uses an output distance function framework to estimate a Malmqvist productivity index for a panel of Great Plains states then adjusts this index by incorporating nitrogen effluent into the analysis. We estimate that long-run environmentally-adjusted productivity growth was approximately 13 percent below the unadjusted rate during the sample period. However the environmentally sensitive productivity rate actually exceeded the unadjusted rate in recent years, reflecting reductions in the discharge of agricultural nitrogen into the environment.


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