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Market Imperfections and Output Loss in the Presence of Expenditure Constraint: A Generalized Shadow Price Approach
Author(s) -
Bhattacharyya Anjana,
Kumbhakar Subal C.
Publication year - 1997
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 - 10.2307/1244427
Subject(s) - shadow price , economics , constraint (computer aided design) , budget constraint , production (economics) , capital (architecture) , function (biology) , sample (material) , potential output , econometrics , microeconomics , monetary economics , mathematics , mathematical optimization , monetary policy , chemistry , geometry , archaeology , chromatography , evolutionary biology , biology , history
In view of widespread capital market imperfections and farmers' budget constraints in developing countries, an indirect production function (IPF) is used for a study of 289 Indian paddy growers. The analysis generalizes the IPF to accommodate the numerous kinds of market imperfections and policy‐induced distortions that pervade less developed countries' agriculture. The presence of these distortions in an expenditure‐constrained situation results in a loss of output, defined as the difference between maximal potential output and actual output. For the sample of farmers, average output loss is found to be in the range of 12%.