A shadow-price profit frontier model is developed to examine production efficiency
of Chinese farm households. The model incorporates price distortions but retains the
advantages of stochastic frontier properties. The shadow prices and shadow profit are
derived through a behavioral profit function. Empirical results using household
survey data show that the conventional assumption of profit maximization based on
market prices is inappropriate. Farmers' resource endowment and education influence
their allocative efficiency. Family size, per capita net income, and family members
operating as village leaders are positively related to households' production efficiency.
Reducing market distortions should increase farm households' production efficiency.