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Estimating Technical Efficiency and Production Risk under Contract Farming: A Bayesian Estimation and Stochastic Dominance Methodology

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  • Ashok K. Mishra
  • Anthony N. Rezitis
  • Mike G. Tsionas

Abstract

We investigate production risk, technical efficiency and risk attitudes amongst contract and independent farmers. We use a Bayesian parametric approach and stochastic dominance quantile regression methods to compare technical efficiency and risk attitude of smallholders in Nepal. Using farm‐level data, we find that contract farmers appear to show lower inefficiency and lower production risk. Additionally, contract and independent farmers can increase output by reducing the scale of operation. Regardless of the commodity produced and farming arrangement (contract or independent production), we find that labour, land and other inputs are risk‐augmenting, while the role of capital is mixed. We find a second order stochastic dominance (SSD) for lentils, and first order stochastic dominance (FSD) for tomatoes, ginger and HYV paddy seed commodities. Finally, contract farmers are more risk averse than independent farmers, regardless of the commodity produced.

Suggested Citation

  • Ashok K. Mishra & Anthony N. Rezitis & Mike G. Tsionas, 2019. "Estimating Technical Efficiency and Production Risk under Contract Farming: A Bayesian Estimation and Stochastic Dominance Methodology," Journal of Agricultural Economics, Wiley Blackwell, vol. 70(2), pages 353-371, June.
    • Handle: RePEc:bla:jageco:v:70:y:2019:i:2:p:353-371
    DOI: 10.1111/1477-9552.12291
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    Cited by:

    1. Rabia Mazhar & Bi Xuehao & Thomas Dogot & Rytis Skominas & Vjekoslav Tanaskovik & Hossein Azadi & Zou Wei, 2022. "Contract Farming and Technical Efficiency: A Case of Export-Oriented Organic Rice Farmers in Pakistan," Land, MDPI, vol. 11(11), pages 1-16, November.
    2. S. C. West & A. W. Mugera & R. S. Kingwell, 2022. "The choice of efficiency benchmarking metric in evaluating firm productivity and viability," Journal of Productivity Analysis, Springer, vol. 57(2), pages 193-211, April.
    3. Zhanwen Shi & Erbao Cao, 2020. "Contract farming problems and games under yield uncertainty," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 64(4), pages 1210-1238, October.
    4. Khanal, Aditya R. & Mishra, Ashok K. & Lien, Gudbrand, 2022. "Risk Aversion, Perceived Climatic and Pest Risks, and the Adoption of Management Strategies: Evidence from an Emerging Economy," 2024 Annual Meeting, July 28-30, New Orleans, LA 322239, Agricultural and Applied Economics Association.
    5. Muhamad Zahid Muhamad & Mad Nasir Shamsudin & Nitty Hirawaty Kamarulzaman & Nolila Mohd Nawi & Jamaliah Laham, 2022. "Investigating Yield Variability and Technical Efficiency of Smallholders Pineapple Production in Johor," Sustainability, MDPI, vol. 14(22), pages 1-18, November.
    6. Lien, Gudbrand & Kumbhakar, Subal C. & Mishra, Ashok K. & Hardaker, J. Brian, 2022. "Does risk management affect productivity of organic rice farmers in India? Evidence from a semiparametric production model," European Journal of Operational Research, Elsevier, vol. 303(3), pages 1392-1402.
    7. Zhanwen Shi & Erbao Cao, 2021. "Risk pooling cooperative games in contract farming," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 69(1), pages 117-139, March.

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