The influence of public subsidies on farm technical efficiency: A robust conditional nonparametric approach

The objective of this paper is to assess the impact of public subsidies on farm technical efficiency using recent advances in nonparametric efficiency analysis. To this end, we use robust conditional frontier techniques as well as insights from recent developments in nonparametric econometrics. The paper contributes to the ongoing methodological discussion on how to model the effect of public subsidies on farmers’ production decisions. The analysis is conducted using an unbalanced panel data of 1,604 observations from 313 French farms located in the French region Meuse over the period 2006-2011. The estimates indicate that public subsidies influence negatively the conditional technical efficiency of farms. This suggests that public subsidies affect the range of attainable values for the inputs and outputs, and hence the shape of the boundary of the attainable set, as well as the distribution of inefficiencies inside the attainable set.