Sources of Technical Efficiency: The Roles of Modernization and Information

Abstract

A major goal of agricultural policy in many developing nations is the improvement of farm management.Economists have treated aspects of this issue in the literature on technical and allocative efficiency, but much of the work has focused almost entirely on devising techniques for quantifying efficiency differentials.This paper takes the next logical step and attempts to identify sources of such differentials.A simple model is presented relating technical efficiency to general modernization and agricultural information.All three variables are measured among a sample of cotton farmers in Tanzania.Correlation analysis and estimates of modified Cobb-Douglas production functions seem to indicate that general modernization is the more important causal factor and that its impact is primarily labor-augmenting.The note appended to this paper demonstrates that when management is omitted from a Cobb-Douglas production function the direction of bias in estimated returns to scale depends on the manner in which management enters the "true" function.Griliches ' [1957] seminal article on this topic implicitely assumes a particular specification that leads to negative bias, whereas alternate, perhaps more appealing, specifications may yield opposite results.

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