An overview of Total Factor Productivity estimations adjusted for pollutant outputs: an application to sugarcane farming
The conventional Total Factor Productivity (TFP) measurement does not incorporate the effects of undesirable outputs, which are harmful to the environment. Using sugarcane farming in Kenya, this paper illustrates the differences between the conventional Malmquist index measures where the environment variable is not adjusted and environment–adjusted measures using both hyperbolic and directional distance functions. The mean TFP change estimates for the conventional Malmquist index, adjusted hyperbolic index and Luenberger indicator were 3.13%, 0.11% and 2.21%, respectively. The conventional non–adjusted measure lies between the two adjusted measures of hyperbolic index and Luenberger indicator.
Keywords: environmental efficiency, Malmquist index, hyperbolic distances, directional distances, strong disposability, weak disposability, sugarcane farming, undesirable outputs, total factor productivity, TFP, pollutant outputs, Kenya, environmental pollution