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A Shadow‐Price Frontier Measurement of Profit Efficiency in Chinese Agriculture
Author(s) -
Wang Jirong,
Wailes Eric J.,
Cramer Gail L.
Publication year - 1996
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.2307/1243786
Subject(s) - allocative efficiency , shadow price , economics , frontier , endowment , profit (economics) , production–possibility frontier , profit maximization , microeconomics , production (economics) , mathematical optimization , philosophy , mathematics , archaeology , epistemology , history
A shadow‐price profit frontier model is developed to examine production efficiency of Chinese farm households. The model incorporates price distortions but retains the advantages of stochastic frontier properties. The shadow prices and shadow profit are derived through a behavioral profit function. Empirical results using household survey data show that the conventional assumption of profit maximization based on market prices is inappropriate. Farmers' resource endowment and education influence their allocative efficiency. Family size, per capita net income, and family members operating as village leaders are positively related to households' production efficiency. Reducing market distortions should increase farm households' production efficiency.