Differences in agricultural returns: an empirical test of efficiency in factor input allocation using Vietnamese data

We study whether rural households in Vietnam allocate their factor inputs efficiently. Factor returns and technical rates of substitution (TRS) between production activities are compared. We estimate two translog production functions and conduct three tests: First we test the equality of bootstrapped returns. Second, we use a bootstrapped t -test comparing the equality of TRS. Finally, we derive a set of nonlinear restrictions on our estimated parameters, which, if held, would imply that we cannot reject efficiency. The article concentrates on the allocation of factors between the cultivation of the two most important agricultural crops—sugar cane and rice. We cannot reject the possibility that households are efficient in their input allocation. These results are consistent and stable over different estimation techniques and support the assumption of profit maximization.