The concept of technical efficiency of farms has sufficiently
been detailed in the literature on agricultural economic development
since Farrell (1957) and has now widely been studied by, among others,
Bardhan (1973); Kalirajan and Flinn (1983); Fare, Grosskopf and Lovell
(1985); Battese, Coelli and Colbi (1989); Kalirajan (1990); Battese and
Coelli (1992); Himayatullah, et al. (1994); and Bashir and Himayatullah
(1994). The interest in relative economic efficiency emerged from the
observation that labour intensity and yield are inversely related to
farm size. Economists interpreted this result as an indication that
either small and large farms faced different configurations of input and
output prices, or small and large farms differed with respect to
economic efficiency. Economic efficiency of a group of farms can be
conceptualised as comprising two main components; technical efficiency
and allocative efficiency. A group of farms may be considered
technically more efficient than another group of farms if it can produce
a given output with less of some or all inputs, and a group of farms may
be considered allocatively more efficient than another group of farms if
it is more successful in equating marginal revenue product with the
marginal cost of inputs. More simply, technical efficiency involves the
farm’s ability to obtain the maximum possible output from a given set of
resources, and allocative efficiency concerns its ability to maximise
profits by equating the marginal revenue product with the marginal cost
of inputs. Specifically, a group of farms that uses the best combination
of inputs achieves the maximum possible output and is superior to
another group of farms which does not do the same, given a similar
bundle of inputs.
Estimating Relative Technical Efficiency in Barani Agriculture:
Some Further Results
