Is the Price Right? The Case of the Nutrient Abatement in Chinese Hog Production

Abstract

Understanding how abatement interacts with production requires a framework that recognizes distinct but interdependent technical processes. This paper applies a full-information maximum likelihood (FIML) system with endogenous regime switching to three groups of Chinese hog farms using different abatement strategies. Each group operates along two separable frontiers (one for production and one for abatement) linked through the shared land input. With a first-stage correction for nonrandom technology choice, the joint FIML estimation identifies the active regime, recovers shadow prices, and distinguishes inefficiency from imbalance within each technological setting. The FIML design shows that this structural approach addresses distortions that arise when production and abatement are evaluated within a single-frontier framework or a two-frontier framework without endogenous-switching. Results reveal systematic differences in land requirements, shadow prices, and regime responses across abatement systems. Ignoring technological heterogeneity risks mispricing pollution control, leading to inefficient or uneven regulatory burdens across farms.