Incorporating environmental impacts in the measurement of agricultural productivity growth

• Published in: Journal of Agricultural and Resource Economics Vol. 29; no. 3; pp. 436 - 460
• Main Authors: Ball, V.E, Lovell, C.A.K, Luu, H, Nehring, R
• Format: Journal Article
• Language: English
• Published: Logan Western Agricultural Economics Association 01.12.2004
• Edition: 1835
• Subjects: agricultural economics; Crop economics; Distance functions; econometric models; Economic indices; Environmental Economics and Policy; Environmental impact; Environmental impact assessment; environmental impacts; environmental indicators; Farm economics; Market prices; Pesticides; prices; Productivity; Productivity growth; water pollution
• ISSN: 1068-5502; 2327-8285
• DOI: 10.22004/ag.econ.30911

Agricultural production is known to have environmental impacts, both adverse and beneficial, and it is desirable to incorporate at least some of these impacts in an environmentally sensitive productivity index. In this paper, we construct indicators of water contamination from the use of agricultural chemicals. These environmental indicators are merged with data on marketed outputs and purchased inputs to form a state-by-year panel of relative levels of outputs and inputs, including environmental impacts. We do not have prices for these undesirable by products, since they are not marketed. Consequently, we calculate a series of Malmquist productivity indexes, which do not require price information. Our benchmark scenario is a conventional Malmquist productivity index based on marketed outputs and purchased inputs only. Our comparison scenarios consist of environmentally sensitive Malmquist productivity indexes that include indicators of risk to human health and to aquatic life from chronic exposure to pesticides. In addition, we derive a set of virtual prices of the undesirable by-products that can be used to calculate an environmentally sensitive Fisher index of productivity change.