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Post-Reform Substitution and Cost Efficiency in the New Zealand Agricultural Sector


  • Catherine J. Morrison Paul

    (Department of Agricultural and Resource Economics, University of California, U.S.A.)

  • Warren E. Johnston

    (Department of Agricultural and Resource Economics, University of California, U.S.A.)

  • Gerald A. G. Frengley

    (Department of Farm Management, Lincoln University, New Zealand)


A recent study suggested that output composition rather than technical efficiency changes were the primary result of dramatic regulatory reforms imposed on the New Zealand sheep and beef farming sector in the 1980s. These results raise important questions about the substitutability and cost efficiency patterns underlying these changes. Although standard measures of returns and biases do not reflect these production characteristics, indicators can be developed, based on marginal rates of transformation and technical substitution, to facilitate such an analysis. We compute such measures and find that output substitutability, even given the product jointness inherent in pastoral production, supported cost efficient output compositional changes in response to reform. However, limited substitutability and rigidities for inputs restricted input responses and imposed significant costs on farmers in their attempts to adapt to the post-reform economic incentives.

Suggested Citation

  • Catherine J. Morrison Paul & Warren E. Johnston & Gerald A. G. Frengley, 2002. "Post-Reform Substitution and Cost Efficiency in the New Zealand Agricultural Sector," International Journal of Business and Economics, College of Business and College of Finance, Feng Chia University, Taichung, Taiwan, vol. 1(2), pages 135-146, August.
  • Handle: RePEc:ijb:journl:v:1:y:2002:i:2:p:135-146

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    References listed on IDEAS

    1. Fare, Rolf & Grosskopf, Shawna, 1990. "A distance function approach to price efficiency," Journal of Public Economics, Elsevier, vol. 43(1), pages 123-126, October.
    2. Catherine J. Morrison Paul & Warren E. Johnston & Gerald A. G. Frengley, 2000. "Efficiency in New Zealand Sheep and Beef Farming: The Impacts of Regulatory Reform," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 325-337, May.
    3. Blackorby, Charles & Russell, R Robert, 1989. "Will the Real Elasticity of Substitution Please Stand Up? (A Comparison of the Allen/Uzawa and Morishima Elasticities)," American Economic Review, American Economic Association, vol. 79(4), pages 882-888, September.
    4. Grosskopf, S. & Margaritis, D. & Valdmanis, V., 1995. "Estimating output substitutability of hospital services: A distance function approach," European Journal of Operational Research, Elsevier, vol. 80(3), pages 575-587, February.
    5. Battese, G E & Coelli, T J, 1995. "A Model for Technical Inefficiency Effects in a Stochastic Frontier Production Function for Panel Data," Empirical Economics, Springer, vol. 20(2), pages 325-332.
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    Cited by:

    1. Tonini, Axel & Jongeneel, Roel, 2005. "The Agricultural Polish Technology and Output Mix Adjustments Due to Transition: a Distance Function Approach Using a Restricted Generalised Maximum Entropy Estimator," 89th Seminar, February 2-5, 2005, Parma, Italy 239280, European Association of Agricultural Economists.

    More about this item


    cost efficiency; allocative efficiency; agriculture; regulatory reform;

    JEL classification:

    • O0 - Economic Development, Innovation, Technological Change, and Growth - - General
    • Q1 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture


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