Comparing frontier methods for economic-environmental trade-off analysis

Abstract

This paper uses a mechanistic frontier approach as a reference to evaluate the ability of conventional parametric (SFA) and non-parametric (DEA) frontier approaches for analyzing economic-environmental trade-offs. Conventional frontier approaches are environmentally adjusted through incorporating the materials balance principle. The analysis is worked out for the Flemish pig finishing case, which is both representative and didactic. Results show that, on average, SFA and DEA yield adequate economic-environmental trade-offs. Both methods are good estimators for technical efficiency. Cost allocative and environmental allocative efficiency scores are less robust, due to the well-known methodological advantages and disadvantages of SFA and DEA. For particular firms, SFA, DEA and the mechanistic approach may yield different economic-environmental trade-offs. One has therefore to be careful when using conventional frontier approaches for firm-specific decision support. The mechanistic approach allows for optimizing performances per average present finisher, which is the production unit in pig finishing. Conventional frontier methods do not allow for this optimization since the number of average present finishers varies along the production functions. Since the mechanistic production function is based on underlying growth, feed uptake and mortality functions, additional firm-specific indicators can also be calculated at each point of the production function. (C) 2010 Elsevier B.V. All rights reserved.