Allocative Efficiency, Traditional Agriculture, and Risk

A decision theory approach is presented for the assessment of allocative efficiency from cross‐section production function estimates. Reappraisal of some of the evidence previously adduced gives only mixed support to the hypothesis of profit‐maximizing behavior by farmers in traditional agricultures. It is suggested that scope remains for investigation of the alternative hypothesis of utility maximization which, unlike profit maximization, explicitly allows for subjective risk considerations and might therefore provide a more realistic basis for policies aimed at the modernization of traditional agricultures.