Comparing the Technical Efficiency of Rice Farms in Urban and Rural Areas: A Case Study from Nepal

This study focuses on comparing the technical efficiency of rice farms in two locations with different level of urbanization. A production function using maximum likelihood method is estimated and efficiency score of individual household is calculated using stochastic frontier analysis. The efficiency scores are regressed on variables including farm-household characteristics and degree of output market commercialization. The empirical evidence suggests that the elasticity of production to land size and biological inputs like chemical fertilizer, pesticide, fungicide and seed is positive and statistically significant. The average efficiency scores in two sample districts indicate that the production can be increased by 26-33% through improving efficiency in a given technological condition. The result suggests that the degree of commercialization has positive effect on technical efficiency. Furthermore, household characteristics like education, age, share of agriculture in total household income, sharecropping also have a significant effect on technical efficiency.