Measurement of economic efficiency using the behavioral and stochastic cost frontier approach

The purpose of this study is to estimate the cost inefficiency by farms using (1) behavioral and (2) stochastic cost frontier functions. The derived measure of inefficiency based on half-normal and/or exponential distribution of one-sided error term is related to socioeconomic variables, and of these, the size of holding, fragmentation of land, subsistence needs, and higher age of farmers contributes positively to inefficiency. The behavioral approach satisfies most of the assumptions of the dual cost function, and the likelihood ratio test rejects the market-efficiency hypothesis. This approach asserts that there is less than optimum use of manures, labor, and fertilizers. The non-optimum use is explained by holding size, education, credit, and subsistence needs. Small farms seem to be more efficient than large farms in the region.