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Estimating Economic Efficiency under Risk for Agricultural Cooperatives

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  • Pokharel, Krishna P.
  • Featherstone, Allen M.
  • Archer, David W.

Abstract

This study examined the impact of downside risk on cost efficiency (CE) and revenue efficiency (RE) for a sample of agricultural cooperatives. Downside risk is an appropriate measure of risk as it accounts for loss below the target return level regardless of individuals’ risk preference. The semi-variance of return on equity was used a measure of downside risk. CE and RE were estimated using data envelopment analysis (DEA) without adjusting for downside risk and then re-estimated adjusting for downside risk. The average CE and RE scores were higher with the inclusion of downside risk than the scores without downside risk. The DEA method without accounting for risk overestimates inefficiency and may misguide managers on adjustments needed to improve performance.

Suggested Citation

  • Pokharel, Krishna P. & Featherstone, Allen M. & Archer, David W., 2018. "Estimating Economic Efficiency under Risk for Agricultural Cooperatives," 2018 Annual Meeting, February 2-6, 2018, Jacksonville, Florida 266729, Southern Agricultural Economics Association.
    • Handle: RePEc:ags:saea18:266729
    DOI: 10.22004/ag.econ.266729
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    References listed on IDEAS

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    Agribusiness; Agricultural Finance;

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