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Risk adjusted cost efficiency indices

Author

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  • Yeager, Elizabeth A.
  • Langemeier, Michael R.

Abstract

This paper examines the impact of risk on cost efficiency for a sample of farms. Cost efficiency was estimated using traditional input and output measures, and then re-estimated including each farm’s downside risk measure. Downside risk was defined as the percent of years in which a farm’s net farm income did not cover unpaid family and operator labour. Comparisons were made with and without a change in efficiency when each farm’s downside risk measure was included in the analysis. As expected, downside risk plays an important role in explaining farm inefficiency. Failure to account for downside risk overstates inefficiency, particularly for farms with low downside risk measures.

Suggested Citation

  • Yeager, Elizabeth A. & Langemeier, Michael R., 2016. "Risk adjusted cost efficiency indices," International Journal of Agricultural Management, Institute of Agricultural Management, vol. 5(3), July.
    • Handle: RePEc:ags:ijameu:287257
    DOI: 10.22004/ag.econ.287257
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    References listed on IDEAS

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    1. Rolf Fare & Shawna Grosskopf & William Weber, 2004. "The effect of risk-based capital requirements on profit efficiency in banking," Applied Economics, Taylor & Francis Journals, vol. 36(15), pages 1731-1743.
    2. Timothy J. Coelli & D.S. Prasada Rao & Christopher J. O’Donnell & George E. Battese, 2005. "An Introduction to Efficiency and Productivity Analysis," Springer Books, Springer, edition 0, number 978-0-387-25895-9, December.
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    Cited by:

    1. Shadbolt, Nicola M. & Olubode-Awosola, Femi, 2016. "Resilience, Risk and Entrepreneurship," International Food and Agribusiness Management Review, International Food and Agribusiness Management Association, vol. 19(2), pages 1-20, May.

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    Keywords

    Risk and Uncertainty;

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