Nonparametric Tests of Cost Minimizing Behavior: A Study of Indian Farms

Subhash Ray and Dipasis Bhadra ()

American Journal of Agricultural Economics, 1993, vol. 75, issue 4, 990-999

Abstract: We extend existing nonparametric methods of analyzing production efficiency to allow some inputs to be quasi-fixed. Varian's Weak Axiom of Cost Minimization is modified to derive the Weak Axiom of Variable Cost Minimization. The methodology is applied to farm level data from West Bengal, India, which are analyzed for consistency with cost minimizing behavior. There is strong evidence against overall cost minimization, a result that cannot be rationalized in terms of production uncertainty and risk aversion. However, violation of either technical efficiency or of variable cost minimization is much less serious. This suggests that failure of cost minimization is principally due to imperfections in the markets for capital and land.

Date: 1993
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Persistent link: https://EconPapers.repec.org/RePEc:oup:ajagec:v:75:y:1993:i:4:p:990-999.

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