Abstract
The objective of this study is to quantitatively investigate the effects of the set-aside programs on profit efficiency in Japanese rice production over the period of 1975-2003. We estimated the observation-specific technical and allocative inefficiency using a primal system consisting of the translog production function and first-order conditions of profit maximization. We extend the model in such a manner as to examine the possibility that technical inefficiency and set-aside rate are correlated.
The empirical results obtained through the maximum likelihood method support the following hypotheses: (1) the set-aside programs have negative effects on allocative efficiency, particularly when the price of rice is falling and (2) there are differences in the extent of decreases in allocative efficiency among farm-size classes. Consequently, it is suggested that rice farmers are discouraged from participating in the set-aside programs.
