MARKET IMPERFECTIONS AND OUTPUT LOSS IN THE PRESENCE OF EXPENDITURE CONSTRAINT - A GENERALIZED SHADOW PRICE APPROACH

In view elf widespread capital marker imperfections and farmers' budge t constraints in developing countries, an indirect production function (IPF) is used for a study of 289 Indian paddy growers, The analysis g eneralizes the IPF to accommodate the numerous kinds of marker imperfe ctions and policy-induced distortions that pervade less developed coun tries' agriculture. The presence of these distortions in an expenditur e constrained situation results in a lass of output, defined as the di fference between maximal potential output and actual output. For the s ample of farmers, average output loss is found to be in the range of 1 2%.