Resource allocation in traditional agriculture in the Ethiopian highlands : a case study

This study examines the technical efficiency of the semisubsistence farmers of Ethiopian highlands at Basona-Warana subdistrict. It also looks at their allocative efficiency in the way that they equate marginal value products of inputs with the respective prices "on the average" in allocating the resources at their disposal. Prior to examining the technical and allocative efficiencies, an overview of the study area is presented. this is followed by a theoretical and empirical literature review on technical and allocative efficiency with particular reference to less developed countries. The study applies a complex, carefully specified, modified transcendental production function of log-semi-log (L-S-L) form to the time-series cross-sectional data to estimate the input-output relationship of the three major crops grown in the area. The results obtained from this study do not provide evidence of inefficient allocation of resources, on the average. Accordingly, output can hardly be raised by reallocating the existing resources. The measure of technical efficiency indicates that only small proportion of the farmers are significantly different from the average farm. However, the magnitude of the technical efficiency differential between the best performing, the average and poorly performing farmer(s) is quite substantial. Hence there is some scope to raise production by improving the technical efficiency of the average and weak farmers. To this end both the included observable explanatory variables as well as some excluded factors which are significantly related to technical efficiency were identified. The results obtained suggest that a significant relationship exists between technical efficiency and the included variables of land under wheat and horsebeans, the relationship being negative with the former and positive with the latter. Similar tests with excluded factors of farm asset holdings and number of plots revealed that farm assets are significantly related to technical efficiency in barley and horsebeans and that number of plots under barley has a negative impact on technical efficiency in barley production. Similar technical efficiency rankings of the farmers were observed in the three different crops. There was also a marked shift in productivity between the two years analysed