NONPARAMETRIC-TESTS OF COST MINIMIZING BEHAVIOR - A STUDY OF INDIAN FARMS

We extend existing nonparametric methods of analyzing production effic iency to allow some inputs to be quasi-fixed. Varian's Weak Axiom of C ost Minimization is modified to derive the Weak Axiom of Variable Cost Minimization. The methodology is applied to farm level data from West Bengal, India, which are analyzed for consistency with cost minimizin g behavior. There is strong evidence against overall cost minimization , a result that cannot be rationalized in terms of production uncertai nty and risk aversion. However, violation of either technical efficien cy or of variable cost minimization is much less serious. This suggest s that failure of cost minimization is principally due to imperfection s in the markets for capital and land.