FACTOR PRODUCTIVITY IN AGRICULTURE AND EC AGRARIAN-REFORM

Discussions among politicians and farmers about a reform of the EC's C ommon Agricultural Policy ignored one important aspect: Is there an in terdependence between outputlevels and factor productivity? The paper provides an empirical answer to this question by estimating a non-homo thetic flexible functional form with four inputs (labour, capital, lan d, material) for the West-German agricultural sector. As a main result , the traditional measure of the Total Factor Productivity, the Solow- residual, overestimates the isolated technical progress by about 1% be cause of scale economies. If lower product prices and higher direct pa yments to the farmers lead to output reductions, this will also induce a less efficient production.