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Environmentally adjusted productivity (EAP); measures for the Nebraska agriculture sector

Saleem Shaik, University of Nebraska - Lincoln


Agriculture, one of the most successful sectors in terms of productivity growth, had more than compensated for the rapid growth in demand for the past few decades but with a hidden cost. Agriculture has important effects on the natural environment: it can generate pollutants that reduce the value of the environment for others; and the allocation of resources to agriculture generally excludes their use for recreational and other purposes. To the extent that unpriced natural resource degradation results from agricultural production, traditional empirical measurement of productivity change misrepresents the true change of productivity (or for that matter, the true value to society from technological advance). The non-parametric approach with its flexibility to handle multi-output and multi-input technologies without prices is a useful tool in computing environmentally adjusted productivity (EAP) measures. The output distance function used to calculate EAP can be defined as the maximum feasible fractional expansion of desirable outputs and fractional contraction of environmental bads given input quantities. The input distance function describing EAP is defined in terms of maximum feasible fractional shrinkage of observed inputs and environmental bads given outputs. A graph measure of EAP is defined in terms of maximum feasible fractional expansion of desirable output and simultaneous fractional shrinkage of environmental bads output and inputs given technology. The inputs, outputs and the environmental bads data for Nebraska agriculture span from 1936-1994. Six categories of agricultural output, five categories of inputs and three categories of environmental bads (nitrogen surplus, pesticide contamination and wetland losses) are generated and aggregated to be used in estimation of the models. The results of disaggregate (six outputs and five inputs) output and graph measures did not show any technical change. When data are aggregated into single output and input, the EAP output of technical change measures were 1.921(with excess nitrogen as a bad), 1.175(with pesticide contamination) and 2.225(with wetland losses), lower than the traditional Tornquist-Theil TFP measures of 2.255. A similar pattern is shown by graph measures. The results confirm, that TFP measures overestimate productivity growth if environmental cost are unaccounted, and underestimate them if environmental benefits are ignored.

Subject Area

Agricultural economics|Agriculture

Recommended Citation

Shaik, Saleem, "Environmentally adjusted productivity (EAP); measures for the Nebraska agriculture sector" (1998). ETD collection for University of Nebraska-Lincoln. AAI9908485.