PRICE DISTORTIONS AND RESOURCE-USE EFFICIENCY IN INDIAN AGRICULTURE: A RESTRICTED PROFIT FUNCTION APPROACH.

This paper develops a generalized profit function which incorporates price distortions resulting from imperfect market conditions, socio-political, and institutional constraints as well as technical and allocative inefficiency. The model is applied to test (i) the appropriateness of the neoclassical profit function and (ii) the effect of education and farm size on allocative performance using farm-level data from Indian agriculture. Empirical results reject the neoclassical profit maximization hypothesis based on market prices in favor of the general model with price distortions. Education is found to reduce price distortions and therefore help to improve allocation of inputs and output. Farm size is found to reduce price distortions only for small farmers. [ABSTRACT FROM AUTHOR]