A SHADOW-PRICE FRONTIER MEASUREMENT OF PROFIT EFFICIENCY IN CHINESE AGRICULTURE

A shadow-price profit frontier model is developed to examine productio n efficiency of Chinese farm households. The model incorporates price distortions but retains the advantages of stochastic frontier properti es. The shadow prices and shadow profit are derived through a behavior al profit function. Empirical results using household survey data show that the conventional assumption of profit maximization based on mark et prices is inappropriate. Farmers' resource endowment and education influence their allocative efficiency. Family size, per capita net inc ome, and family members operating as village leaders are positively re lated to households' production efficiency. Reducing market distortion s should increase Farm households' production efficiency.