Total Factor Productivity Adjusted for a Detrimental Input

The measurement of total factor productivity in agriculture has been recently extended in order to include some 'bad' outputs that are jointly produced along with agricultural goods. In this paper, total factor productivity is decomposed into its determining factors and nitrate pollution is treated as an environmentally detrimental input. A restricted variable cost function is specified for Greek agriculture for the period 1969-1996. A constraint is assumed on nitrate pollution and the TFP estimates, which are obtained, are then decomposed into the rate of technical change effect, the scale effect and the market disequilibrium effect.