Farmers’ Education—Cost Efficiency and Economies of Scale: Evidence from Orissa

This paper empirically examines the cost efficiency of the effective heads of 200 farm households with respect to their education, experience and average education of their families. The parameters of stochastic frontier Cobb-Douglas cost function and inefficiency function have been simultaneously estimated. The results show that cost efficiencies of the farm households significantly improve with increase in the experience in farming and the level of education of the effective heads. About 75% of the variation in the total cost of production among the sample farms is due to variations in their cost efficiencies. The mean cost efficiency is estimated as 1.130, which implies that an average farm household incurs costs that are 13% above the minimum defined by the frontier and 78% of the farm households are in the range of 1.00-1.19. Hence, a majority of the farm households are fairly efficient in using cost minimizing inputs. The presence of economies of scale shows that the farm households experience diminishing but positive returns to scale. The study emphasizes the role of both the government and private agencies in introducing farm-oriented education at the school and college levels.