Allocation Efficiency in a Traditional Indian Agriculture

The hypothesis that Indian cultivators who use traditional technology make rational profit maximizing allocations of factors was tested by observation of the allocation of four major inputs to four production alternatives for 43 farms in north central India. The measurements were made during the peak period of agricultural activity when factor-product allocations are truly competitive. Production functions were determined and the implicit marginal product of each factor and the implicit value of each product were calculated at the mean levels of input and expected output. The calculated relative prices implicit in the factor-product allocations conformed, within error limits, to expectations of profit maximizing behavior derived from a static neoclassical model. When the calculated relative implicit product prices were expanded to the market price level, they were in close correspondence with prices prevailing in the local market town.