Reform and efficiency of state-owned forest enterprises in Northeast China as “social firms”

Abstract

State-owned forest enterprises (SOFEs) in northeast China have experienced past economic loss and environmental degradation, causing government to seek reforms. Measurement of technical efficiency allows us to evaluate overall trends and how reforms affect production of social and environmental goods. Previous assessments have used small samples, short time periods, and viewed SOFEs as if they were profit-maximizers. We compared a traditional profit-maximization framework to an alternative “social firms” framework for SOFEs to classify inputs and outputs, and data envelopment analysis to measure the efficiency of 86 SOFEs from 2003 to 2009. We argue that the social firm framework is more appropriate for SOFEs given their stated objectives. We found no overall trend in pure technical efficiency over time for the social firm framework; however, there was an increase in pure technical efficiency for the profit maximization framework, consistent with past literature. At the same time, there were decreases in scale efficiency primarily due to higher levels of government investment. We compared groups of SOFEs that underwent a specific pilot forest tenure reform to those that did not, and we found no evidence to support that tenure reform improved technical efficiency.