Assessing Opportunity Costs Under Conflicting Objectives: Application to Profitability, Pesticide Reduction, and Crop Production
Résumé
This study proposes a method to evaluate opportunity costs when shifting between competing objectives. We compare three strategies: profitability maximization (baseline), output production maximization and input cost minimization. Our analysis is conducted in two stages. First, using a log-linear production technology and incorporating output prices, we correct for inefficiencies to position all decision-making units (DMUs) on the efficiency frontier, ensuring a relevant comparison. In the second stage, we estimate opportunity costs and related price elasticity when switching strategies. Using a panel of 458 arable farms in the Meuse region (France) observed over 27 years (1991–2017), we analyze the tradeoffs between farmers’ objectives for profitability maximization, the society’s objective to maximize crop production and the environmental concern for pesticide use minimization. The first stage of analysis identifies potential improvements within each objective. In the second stage, when all practices are projected on the frontier, we compute the margin per ha loss when switching from the farmers’ objective of profitability maximization to any of the alternative scenarios and the price elasticities related to these switches. Importantly, our analysis indicates that reducing pesticide use is economically viable, while maximizing production may lead to greater financial trade-offs.
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