June 1977
Western J. Agr. Econ.
market forces can make a new technique mon
efficient at social factor prices. Specifically, theɔ
make it possible to expand output with a giver
resource expenditure, or to produce a given outpu
at a lower cost when all inputs are priced at their
social values.1 These innovations, or forces, au
classified as efficiency-enhancing developments ir
table 1. Secondly, factor price distortions or other
forms of government intervention can make
adoption of a new technique privately profitable
but not socially efficient when evaluated at the
true social values of the utilized resources. These
forces are identified as market distortions in table
1. Common examples of policies which artifically
lower the capital∕labor price ratio include direct
subsidies or subsidized credit for capital inputs
(i.e., farm machinery and agri-chemicals), prefer-
ential exemptions from import levies, special
exemptions from domestic taxes, payroll taxes and
Testrictivelaborlegislation, and legislated minimum
wages above equilibrium levels.
The framework also divides welfare effects
associated with technical change by type, specifi-
cally between efficiency and distributional changes.
Efficiency changes are measured with respect to
the society’s resource cost of producing a given
output. Distributional changes refer to the dis-
tribution of welfare benefits and costs among
different groups in society, and how these changes
relate to the society’s broad equity goals.
Theoretical Framework
The unit isoquant construct utilized by Timmer
for evaluating alternative rice milling technologies
in Indonesia provides a useful device for describing
the efficiency and distributional implications of a
change in techniques brought on by “efficiency-
enhancing developments” or by policy-induced
“market distortions.”2 The framework is useful
1Gittinger discusses the difference between “financial”
analyses based on private prices and “economic” analyses
based on social prices. The correction of market prices,
which may be distorted by several government policies
and other influences simultaneously, to obtain “true”
social prices can be difficult in practice. But correction is
essential to evaluate the economic desirability of a new
technology or development project for society as a whole.
2The unit isoquant concept was originally developed
by Farrell to distinguish and measure the relative techni-
cal and economic efficiency of different firms within
an industry, a somewhat different problem and application
from that addressed by Timmer and by this study.
Table 1. Theoretical classification of welfare
changes from technical change
|
^4>^Type |
Efficiency |
Distributional |
|
Efficiency- |
I (Gains) |
Il (Gains or Losses) |
|
Market |
III |
IV (Gains or Losses) |
primarily for evaluating new technologies that
are characterized by different factor intensities but
which do not increase output significantly through
either yield-improving or acreage-expansion effects.
Unit isoquant ABC in figure 1 displays a hy-
pothetical frontier of technically efficient weed
control techniques for a given crop, farm type,
and ecological setting. Capital requirements per
hectare, measured in terms of the social values
of utilized materials and capital services, are
plotted on the vertical axis, and labor requirements
on the horizontal axis. All techniques on the unit
isoquant are assumed to give equally effective
weed control.3 By introducing the labor-capital
isocost line, PR, in figure 1, Technique B is deter-
mined to be the most efficient technology on ABC
The Iineary segmented isoquants in figures 1 and 2
which generate “corner tangencies” realistically
describe the technology selection process within
a cost-minimizing linear programming framework.
Such discrete choices of technology confront
farmers in many real world situations as well.
Consider next the introduction of an “efficiency-
enhancing development,,-for example, a new,
inexpensive, granular herbicide represented by
Point E in figure 1. The new herbicide is assumed
to produce the same yield response as the old
techniques in this setting, so the new frontier
of technically efficient methods shifts to AEC
and Technique Bbecomestechnologically obsolete.
At the same factor price ratio, represented by P'R'
3In fact, all the techniques illustrated in figure 1
produced statistically equivalent yields in repeated experi-
mental trials within one Northeast Brazil study area
[OSU∕EMBRAPA∕USAID Project]. Also, in the north-
east Brazil case studies, crop acreage levels were largely
determined by other factors. In situations where the
choice of weed control technique significantly influenced
output, this effect should also be considered in the
analysis.
230