An Analysis of the Technical and Allocative Efficiency of Paddy Farming: The Case of Mahaweli System H

Abstract

This study estimates the technical and allocative efficiency of paddy farming in Sri Lanka. Household-specific technical efficiencies were computed using cross-sectional data collected from the household survey conducted in 2014 using a Stochastic Frontier approach. The Cobb-Douglas functional form was adopted for the frontier production function and the distributional assumption made for the inefficiency term was half normal. The results of this study show that the estimated mean technical efficiency of the farmers is 78.32 percent, suggesting there is a scope of 21.68 percent to increase paddy productivity using present technology. The estimated Returns to Scale is 0.2806, which implies that a proportional increase in all factors of production leads to a less than proportional increase in paddy productivity. Age, schooling, alcohol consumption, agricultural training, farmers’ attitudes, and the distance between the land and the main watercourse are significant determinants of technical efficiency. According to the analysis of allocative efficiency, there exists inefficiency in allocating resources, where land and machinery resources are underutilised while labour is over utilized.