Land subsidence, production efficiency, and the decision of aquacultural firms in Taiwan to discontinue production

For some time the over-pumping of groundwater by aquacultural producers has contributed to severe problems with land subsidence in many areas of Taiwan. This has led to policy initiatives that impose extra costs on groundwater users. By investigating the effects of the conditions of aquifers, production efficiency and other factors on decisions of Taiwanese aquacultural producers to exit the industry, this paper lays an important foundation for an understanding of the effects of these policy initiatives. Using data from a nationwide survey, this exit decision is examined using an innovative empirical strategy that combines Data Envelopment Analysis with a discrete choice econometric model. Results indicate that less efficient firms and those located in areas where land subsidence is severe are more likely to exit. These relationships may in part reflect the effectiveness of the recent policy changes to reduce land subsidence attributable to aquaculture production.