Technical efficiency and investment strategy: The case of new energy-intensive technology in Finnish greenhouse cucumber industry

Abstract

We study firms technical efficiency and associatedimplications for investment planning for Finnish greenhousefirms. A firm s technical efficiency is measured using intra-technology and inter-technologymeasures. A firm s investment strategies include investmentsin new energy-intensive assimilation light technology, new greenhouses to enlarge the scale of operation, or a combination of the two. Alternatively, a firm s strategy is not to invest. The central question is whether one technology outperforms another, controlling for firms technical efficiency. The main result is that the new technology in and by itself does neitherprovide the highest technical performance nor maximisethe net cash flow for all types of firms. Small family firms reach highest technical efficiency and maximum net cash flow using a traditional energy-extensive technology with current greenhouse area. For inefficient large firms, partially adoption of new energy-intensive technology is required to fully exploit efficiency potentials. If the large firms are efficient, the area expansion with assimilation lights increase the net cash flow too. The results also indicate that the more inefficient firms the minor price reduction theytolerate when investing in energy-intensive technology.