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Volume
1, No. 2,
August 2002
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Post-Reform Substitution and Cost
Efficiency in the New Zealand Agricultural Sector
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Catherine J.
Morrison Paul* and Warren E. Johnston
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Department of Agricultural and Resource Economics,
University of California, U.S.A.
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Gerald
A. G. Frengley
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Department of Farm Management, Lincoln University, New
Zealand
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Abstract
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A
recent study suggested that output composition
rather than technical efficiency changes were the
primary result of dramatic regulatory reforms
imposed on the New Zealand sheep and beef farming
sector in the 1980s. These results raise important
questions about the substitutability and cost
efficiency patterns underlying these changes.
Although standard measures of returns and biases do
not reflect these production characteristics,
indicators can be developed, based on marginal rates
of transformation and technical substitution, to
facilitate such an analysis. We compute such
measures and find that output substitutability, even
given the product jointness inherent in pastoral
production, supported cost efficient output
compositional changes in response to reform.
However, limited substitutability and rigidities for
inputs restricted input responses and imposed
significant costs on farmers in their attempts to
adapt to the post-reform economic incentives.
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Key words
:
cost efficiency; allocative
efficiency; agriculture; regulatory reform
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JEL
classification
:
O0; Q1
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