Dynamic efficiency of German dairy farms under uncertainty
by Silke Hüttel; Rashmi Narayana; Christina Wagner; Martin Odening
International Journal of Business Performance Management (IJBPM), Vol. 18, No. 4, 2017

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.

Online publication date: Fri, 06-Oct-2017

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