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Farming In The Eastern Amazon-Poor But Allocatively Efficient

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  • Sauer, Johannes
  • Mendoza-Escalante, Arisbe
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    Abstract

    This research empirically investigates the well known 'poor-but-efficient' hypothesis formulated by Schultz (1964) assuming that small scale farmers in developing countries are reasonably efficient in allocating their scarce resources by responding positively to price incentives. Deviating from Schultz it is assumed here that scale effects explain a considerable proportion of small scale farmers' relative efficiency. The theoretical underpinnings of the scale efficiency concept are briefly reviewed before a normalized generalized Leontief profit function is modeled by using its output supply and input demand system to capture the joint production of cassava flour and maize by a sample of small scale farmers in the Bragantina region of the Eastern Amazon, Brazil. The discussion on theoretical consistency and functional flexibility is considered by imposing convexity on the GL profit framework. The empirical results confirm our revised hypothesis that small farmers in traditional development settings are 'poor-but-allocatively efficient' by clearly suggesting considerable inefficiency with respect to the scale of operations.

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    File URL: http://purl.umn.edu/7573
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    Bibliographic Info

    Paper provided by German Association of Agricultural Economists (GEWISOLA) in its series 47th Annual Conference, Weihenstephan, Germany, September 26-28, 2007 with number 7573.

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    Date of creation: 2007
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    Handle: RePEc:ags:gewi07:7573

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    Related research

    Keywords: Efficiency; Joint Production; Small Scale Farming; Schultz Hypothesis; Farm Management;

    References

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    1. Johannes Sauer, 2006. "Economic Theory and Econometric Practice: Parametric Efficiency Analysis," Empirical Economics, Springer, vol. 31(4), pages 1061-1087, November.
    2. Diewert, Walter E & Wales, Terence J, 1987. "Flexible Functional Forms and Global Curvature Conditions," Econometrica, Econometric Society, vol. 55(1), pages 43-68, January.
    3. Wang, Jirong & Cramer, Gail L. & Wailes, Eric J., 1996. "Production efficiency of Chinese agriculture: evidence from rural household survey data," Agricultural Economics, Blackwell, vol. 15(1), pages 17-28, September.
    4. Bravo-Ureta, Boris E. & Evenson, Robert E., 1994. "Efficiency in agricultural production: the case of peasant farmers in eastern Paraguay," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 10(1), January.
    5. Bravo-Ureta, Boris E. & Evenson, Robert E., 1994. "Efficiency in agricultural production: The case of peasant farmers in eastern Paraguay," Agricultural Economics, Blackwell, vol. 10(1), pages 27-37, January.
    6. Banerjee, Abhijit V & Newman, Andrew F, 1994. "Poverty, Incentives, and Development," American Economic Review, American Economic Association, vol. 84(2), pages 211-15, May.
    7. Bhagwati, Jagdish N & Chakravarty, Sukhamoy, 1969. "Contributions to Indian Economic Analysis: A Survey," American Economic Review, American Economic Association, vol. 59(4), pages 2-73, Part II S.
    8. Diewert, W. E., 1973. "Functional forms for profit and transformation functions," Journal of Economic Theory, Elsevier, vol. 6(3), pages 284-316, June.
    9. Wang, Jirong & Cramer, Gail L. & Wailes, Eric J., 1996. "Production efficiency of Chinese agriculture: evidence from rural household survey data," Agricultural Economics: The Journal of the International Association of Agricultural Economists, International Association of Agricultural Economists, vol. 15(1), September.
    10. Ball, Richard & Pounder, Laurie, 1996. ""Efficient but Poor" Revisited," Economic Development and Cultural Change, University of Chicago Press, vol. 44(4), pages 735-60, July.
    11. Taylor, Timothy G. & Scott Shonkwiler, J., 1986. "Alternative stochastic specifications of the frontier production function in the analysis of agricultural credit programs and technical efficiency," Journal of Development Economics, Elsevier, vol. 21(1), pages 149-160, April.
    12. Lovell, C A Knox & Sickles, Robin C, 1983. "Testing Efficiency Hypotheses in Joint Production: A Parametric Approach," The Review of Economics and Statistics, MIT Press, vol. 65(1), pages 51-58, February.
    13. Ryan, David L. & Wales, Terence J., 2000. "Imposing local concavity in the translog and generalized Leontief cost functions," Economics Letters, Elsevier, vol. 67(3), pages 253-260, June.
    14. Sherlund, Shane M. & Barrett, Christopher B. & Adesina, Akinwumi A., 2002. "Smallholder technical efficiency controlling for environmental production conditions," Journal of Development Economics, Elsevier, vol. 69(1), pages 85-101, October.
    15. Schultz, Theodore W, 1975. "The Value of the Ability to Deal with Disequilibria," Journal of Economic Literature, American Economic Association, vol. 13(3), pages 827-46, September.
    16. Lau, Lawrence J & Yotopoulos, Pan A, 1971. "A Test for Relative Efficiency and Application to Indian Agriculture," American Economic Review, American Economic Association, vol. 61(1), pages 94-109, March.
    17. Oberhofer, W & Kmenta, J, 1974. "A General Procedure for Obtaining Maximum Likelihood Estimates in Generalized Regression Models," Econometrica, Econometric Society, vol. 42(3), pages 579-90, May.
    18. Christpher B. Barrett, 1997. "How credible are estimates of peasant allocative scale, or scope efficiency? A commentary," Journal of International Development, John Wiley & Sons, Ltd., vol. 9(2), pages 221-229.
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