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.
För en kortfattad version på svenska, se AgriFood Policy Brief 2018:1.