Evaluating basis for a targeted environmental policy: Do the opportunity costs of enhancing biodiversity differ between organic and conventional farms?

Summary

For policy making, it is important to identify the types of farms that are most efficient in enhancement of environmental quality, e.g., conservation of biodiversity. Attractiveness of conservation of biodiversity depends crucially on the opportunity costs of conservation. We use a crop diversity index as an indicator of environmental output to compare effciency of conventional and organic crop farms. Non-parametric technical efficiency scores are estimated applying data envelopment analysis on a sample of Finnish crop farms for 1994-2001. We also estimate opportunity costs, or shadow values, of producing crop diversity. According to our results, there is variation in shadow values of crop diversity between the farms and technology adopted. This information provides basis for design of tailored, cost effective policy instruments such as auctions for conservation payments.