Relationships between technical efficiency and subsidies for Czech farms: A two-stage robust approach

Abstract

Subsidies for agriculture in the European Union have been a matter of debate for a long time. However, even after many years of debate, it remains unclear whether the subsidies have a positive or negative effect on farm efficiency. We propose a robust two-stage framework to study the subsidies-effect to farm technical efficiency while controlling farm heterogeneity. First, technical efficiency scores are computed using a modern robust data envelopment analysis model. Then, a quantile regression model is applied to explain the relationship between technical efficiency and the total subsidies and other commonly used explanatory variables. In the empirical part, we analyze a sample of Czech farms during the period from 2010 to 2015. It is revealed that the subsidies-effect is negative and varies based on the technical efficiency of the farm. Higher efficient farms face a less distorting effect than lower efficient farms.