Article

Uncertainty and technical efficiency in Finnish agriculture: A state-contingent approach

Céline Nauges, Christopher J. O'Donnell, and John Quiggin

Abstract

In this article, we present one of the first real-world empirical applications of state-contingent production theory. Our state-contingent behavioural model allows us to analyse production under both inefficiency and uncertainty without regard to the nature of producer risk preferences. Using farm data for Finland, we estimate a flexible production model that permits substitutability between state-contingent outputs. We test empirically and reject an assumption that has been implicit in almost all efficiency studies conducted in the last three decades, namely that the production technology is output-cubical, i.e. that outputs are not substitutable between states of nature.

Keywords

State-contingent production theory; uncertainty; inefficiency; Finland;

JEL codes

  • D81: Criteria for Decision-Making under Risk and Uncertainty
  • Q12: Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
  • Q18: Agricultural Policy • Food Policy

Reference

Céline Nauges, Christopher J. O'Donnell, and John Quiggin, Uncertainty and technical efficiency in Finnish agriculture: A state-contingent approach, European Review of Agricultural Economics, vol. 38, n. 4, 2011, pp. 449–467.

Published in

European Review of Agricultural Economics, vol. 38, n. 4, 2011, pp. 449–467