Education and Technical Efficiency in Small-Farm Production

Abstract

Differences in technical efficiency are observed as differences in the physical output produced from a given bundle of physical inputs. These differences are not considered in the traditional theory of the firm, wherein the output resulting from a particular input bundle is specified as the maximum possible according to the latest technology. Presupposing technical efficiency, the theory of the firm concentrates on allocative efficiency-on the choice of the particular input bundle that maximizes profit, given prices and the technically efficient production function. "The best utilization of any particular input combination," according to Henderson and Quandt, "is a technical, not an economic problem."1 Economic theory notwithstanding, empirical studies of production must take into account differences in the utilization of inputs since, in the real world, producers are not all equally efficient. It is conceptually convenient to divide the output variation observed over a number of firms into two parts, one that stems from variation in physical inputs and another that reflects differences in technical efficiency. Timmer has developed an approach by which to compare the technical efficiency of firms. Using linear programming, he determines the function that relates physical inputs to output for the most efficient of a sample of firms; in other words, he finds the production surface that is the envelope of all the observation points. He calls this function "the technical frontier." The relative tech-