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Modelling farm production decisions under an expenditure constraint


  • Subal C. Kumbhakar
  • Raushan Bokusheva


We use the indirect production function approach in the stochastic frontier framework to estimate separately the output losses due to the presence of a budget constraint and technical inefficiency. We develop a methodology for estimating the severity and testing the significance of the expenditure constraint at individual producer level. Our results, based on the farm data from three Russian regions from 1999 to 2003, show that the majority of the farms studied were expenditure-constrained during the study period. Expenditure constraints caused, on average, a potential output loss of 20 per cent. Output loss due to technical inefficiency, on average, is found to be around 13 per cent. Oxford University Press and Foundation for the European Review of Agricultural Economics 2009; all rights reserved. For permissions, please email, Oxford University Press.

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  • Subal C. Kumbhakar & Raushan Bokusheva, 2009. "Modelling farm production decisions under an expenditure constraint," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 36(3), pages 343-367, September.
  • Handle: RePEc:oup:erevae:v:36:y:2009:i:3:p:343-367

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    References listed on IDEAS

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    Cited by:

    1. Viaggi, Davide & Raggi, Meri & Gomez y Paloma, Sergio, 2011. "Farm-household investment behaviour and the CAP decoupling: Methodological issues in assessing policy impacts," Journal of Policy Modeling, Elsevier, vol. 33(1), pages 127-145, January.
    2. Rizov, Marian & Pokrivcak, Jan & Ciaian, Pavel, 2013. "CAP Subsidies and the Productivity of EU Farms," Factor Markets Working Papers 148, Centre for European Policy Studies.
    3. Marian Rizov & Jan Pokrivcak & Pavel Ciaian, 2013. "CAP Subsidies and Productivity of the EU Farms," Journal of Agricultural Economics, Wiley Blackwell, vol. 64(3), pages 537-557, September.
    4. Obeng, K. & Sakano, R. & Naanwaab, C., 2016. "Understanding overall output efficiency in public transit systems: The roles of input regulations, perceived budget and input subsidies," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 89(C), pages 133-150.
    5. Moro, Daniele & Sckokai, Paolo, 2013. "The impact of decoupled payments on farm choices: Conceptual and methodological challenges," Food Policy, Elsevier, vol. 41(C), pages 28-38.

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