Efficiency and Merger Gains in The Danish Forestry Extension Service

In Denmark, many small-scale forest owners are affiliated to local district offices of The Danish Forestry Extension Service. Increasing economic pressure has caused a search for more efficiency in the Service, including potential reorganisation. In this paper, the efficiency of the different offices is evaluated using Data Envelopment Analysis (DEA) to approximate their production technology. Furthermore, recent theoretical developments in DEA-analysis are used to assess the gains from a number of potential mergers, and to decompose these gains into those from technological improvements, harmony effects and scale effects. It is found that technological inefficiency is the major source of inefficiency, mergers are only favoured through harmony gains, and for almost all potential mergers the scale effect seems absent or even negative.