Incorporating Environmental Impacts in the Measurement of Agricultural Productivity Growth

Agricultural production is known to have environmental impacts, both adverse and beneficial, and it is desirable to incorporate at least some of these impacts in an environmentally sensitive productivity index. In this paper, we construct indicators of water contamination from the use of agricultural chemicals. These environmental indicators are merged with data on marketed outputs and purchased inputs to form a state-by-year panel of relative levels of outputs and inputs, including environmental impacts. We do not have prices for these undesirable by products, since they are not marketed. Consequently, we calculate a series of Malmquist productivity indexes, which do not require price information. Our benchmark scenario is a conventional Malmquist productivity index based on marketed outputs and purchased inputs only. Our comparison scenarios consist of environmentally sensitive Malmquist productivity indexes that include indicators of risk to human health and to aquatic life from chronic exposure to pesticides. In addition, we derive a set of virtual prices of the undesirable by-products that can be used to calculate an environmentally sensitive Fisher index of productivity change.

[1]  Wallace E. Oates,et al.  The theory of environmental policy , 1976 .

[2]  Richard Nehring,et al.  Environmental Indicators of Pesticide Leaching and Runoff from Farm Fields , 2002 .

[3]  Rolf Färe,et al.  Productivity and Undesirable Outputs: A Directional Distance Function Approach , 1995 .

[4]  Agapi Somwaru,et al.  Agricultural Productivity Revisited , 1997 .

[5]  Agapi Somwaru,et al.  Incorporating undesirable outputs into models of production: an application to United States agriculture , 1994 .

[6]  Francesc Hernández-Sancho,et al.  The calculation of shadow prices for industrial wastes using distance functions: An analysis for Spanish ceramic pavements firms , 2001 .

[7]  Wallace E. Oates,et al.  Tightening Environmental Standards: The Benefit-Cost or the No-Cost Paradigm? , 1995 .

[8]  R. Shepherd.  Theory of cost and production functions , 1970 .

[9]  J. Coggins,et al.  The Price of Pollution: A Dual Approach to Valuing SO2Allowances , 1994 .

[10]  M. Porter,et al.  Toward a New Conception of the Environment-Competitiveness Relationship , 1995 .

[11]  M. Ollinger,et al.  Innovation and Regulation in the Pesticide Industry , 1998, Agricultural and Resource Economics Review.

[12]  W. Diewert.  Fisher ideal output, input, and productivity indexes revisited , 1992 .

[13]  S. Malmquist.  Index numbers and indifference surfaces , 1953 .

[14]  Atakelty Hailu,et al.  Environmentally Sensitive Productivity Analysis of the Canadian Pulp and Paper Industry, 1959-1994: An Input Distance Function Approach , 2000 .

[15]  Russell Pittman,et al.  Multilateral Productivity Comparisons with Undesirable Outputs , 1983 .

[16]  C. Shumway,et al.  Aggregation Without Separability: Tests of the United States and Mexican Agricultural Production Data , 2000 .

[17]  M. Cropper,et al.  Environmental Economics: A Survey , 1992 .

[18]  V. E. Ball,et al.  Patterns of State Productivity Growth in the U.S. Farm Sector: Linking State and Aggregate Models , 1999 .

[19]  R. Repetto,et al.  Has Environmental Protection Really Reduced Productivity Growth , 1996 .

[20]  J. Hicks.  The Valuation of the Social Income , 1940 .

[21]  Gale A. Boyd,et al.  The Impact of Environmental Constraints on Productivity Improvement in Integrated Paper Plants , 1999 .

[22]  Agapi Somwaru,et al.  Incorporating indesirable outputs into models of production: an application to US agriculture , 1994 .

[23]  R. Färe.  Derivation of Shadow Prices for Undesirable Outputs: A Distance Function Approach , 1993 .

[24]  Rolf Färe,et al.  Productivity of the U.S. Agricultural Sector: The Case of Undesirable Outputs , 2001 .

[25]  I. Fisher,et al.  The making of index numbers , 1967 .

[26]  V. E. Ball,et al.  Effective Costs and Chemical Use in United States Agricultural Production: Using the Environment as a “Free” Input , 2002 .

[27]  R. Shephard.  Cost and production functions , 1953 .

[28]  R. Färe,et al.  The measurement of efficiency of production , 1985 .

[29]  L. Törnqvist.  The Bank of Finland's consumption price index , 1936 .

[30]  L. R. Christensen,et al.  THE ECONOMIC THEORY OF INDEX NUMBERS AND THE MEASUREMENT OF INPUT, OUTPUT, AND PRODUCTIVITY , 1982 .

[31]  C. Lovell,et al.  A note on the Malmquist productivity index , 1995 .

[32]  R. Halvorsen,et al.  The Interpretation of Dummy Variables in Semilogarithmic Equations , 1980 .

[33]  Costs of Production and Environmental Risk: Resource-Factor Substitution in U.S. Agriculture , 2002 .

[34]  A. Oskam.  Productivity Measurement, Incorporating Environmental Effects of Agricultural Production , 1991 .

[35]  V. E. Ball,et al.  The Environmental Performance of the U.S. Agricultural Sector , 2002 .

[36]  Testing for Behavioral Objective and Aggregation Opportunities in U.S. Agricultural Data , 1998 .