Farm Household Production Efficiency: Evidence from The Gambia

Abstract This article investigates the economic efficiency of farm households, with an application to The Gambia. The efficiency analysis is conducted not at the farm level but at the household level, thus capturing the importance of off‐farm activities. Output‐based measures of technical, allocative, and scale efficiency are generated using nonparametric measurements. An econometric analysis of factors affecting the efficiency indexes is then conducted using a Tobit model. Technical efficiency is fairly high indicating that access to technology is not a severe constraint for most farm households. The cost of scale inefficiency is modest. Allocative inefficiency by contrast is found to be important for the majority of farm households. On the basis of the Tobit results, imperfections in markets for financial capital and nonfarm employment contribute to significant allocative inefficiency.