The behavioral and stochastic cost frontier functions are applied to estimate cost inefficiency by farms. The behavioral approach satisfies most of the assumptions of dual cost function and the likelihood ratio test rejects the market efficiency hypothesis implying less than optimum use of manures, labor, and fertilizers. A suboptimal use is explained by holding size, education, credit, and subsistence needs. Small farms seem to be more efficient than large farms in the region. A measure of inefficiency based on a stochastic cost frontier approach confirms the results of the behavioral approach.

The objective of this study is to measure technical efficiency, using a translog frontier production function on cross‐sectional data from 397 farms in the North‐West Frontier Province of Pakistan in 1988–89. The estimated farm level technical efficiency is found to be dependent upon levels of credit and education, farmers' ages and the extent of land fragmentation. Lack of education, restricted credit and fragmented holdings are found to be causes of inefficiency; hence policies which consolidate holdings, provide credit or educate farmers will tend to improve efficiency in agriculture.

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