The risk arises from inadequate knowledge about best practice techniques (technical risk) and markets/prices (allocative risk). On the basis of this assumption, the economic inefficiency has been decomposed into inefficiencies due to technical and allocative risks. The study, conducted during 2004-05, is based on the primary cross-sectional data collected from six villages from three rural development blocks of South Tripura district in the Tripura state of India, with 239 farms as the sample. More than 96 per cent of the difference between observed and frontier output has been found primarily due to factors which are under the control of farms, i.e. due to technical inefficiencies. The mean economic efficiency under risk has been estimated at the level of 34.11 per cent. The economic inefficiency due to technical risk and allocative risk has been found as 20.86 and 45.03 per cent, respectively of the existing economic inefficiency. The variations in EEar (allocative risks) have been found lower than those in EEtr (technical risks). A negative correlation has been observed between EEtr and EEar. The amount of EEtr has been found to be lower than that of EEar.


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