Dynamic pollution-adjusted inefficiency under the by-production of bad outputs

Abstract

This article extends the by-production model to the dynamic context of adjustment costs associated with investment. The empirical application focuses on panel data of French suckler cow farms over the period 1978–2014, considering emissions of greenhouse gases as bad output. The paper estimates input and output-specific technical inefficiency scores in the dynamic context and compares them with efficiency measures from the conventional static context. Our results reveal significant differences between inefficiency scores derived from the static and the dynamic frameworks. For all variables except meat production (the good output), the inefficiency score is lower in the dynamic context than in the static context.