Inefficiency in agricultural production is generally interpreted as waste in the use of production factors. We challenge this interpretation by providing an explanation for why apparent inefficiency may result from rational production decisions by farmers and demonstrating systematics in the inefficiency patterns amongst the production factors that lend support for this, i.e. the rational inefficiency hypothesis.

Based on a multidirectional efficiency analysis of 421 Swedish dairy farms and statistical analyses of the inefficiency patterns, we provide support for the existence of rational inefficiency. These findings have clear implications for policy schemes aiming at pushing farms towards the efficient production frontier.

For a brief version in Swedish, see AgriFood Policy Brief 2018:1.