Various procedures have been used for the measurement of firm‐specific technical efficiency. Most commonly used methods are static and deterministic. Deterministic methods tend to yield biased estimates of technical efficiency and to overestimate the variability of technical efficiency over time. These conclusions are illustrated by applying stochastic frontier production function analysis and corrected ordinary least squares procedures to farm data from Sri Lanka.

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Human capital comprising various components, such w diaerent types of training, experience and skills. influences the capacity of economic agents to adjust to chan~ng environments. We distinguish between f o d eduatioa genemi experience and various types of specific experience w determinants of adjustment to disequilibria in agriculture and demonstrate that their rehtive importance varies according to the nature of the changes hcing the farmen. The results provide stronq support for the importance of Iand-specific experience even in 'modernising' situations.It has been argued that an economy in a stationary state, where the production technology and the production environment (both physical and economic) has remained unchanged over a long period, will be in an equilibrium with regard to resource use (Schultz 1975).' Such equilibria can be disturbed by changes in the economic or physical environment and by technological change. Individual firms do not and, often, cannot instantaneously adjust to such disturbances for several reasons. The rate of adjustment is determined by the ability to seek out relevant technological and market information. decode and analyse it, adapt it to the environment and. finally, to apply this knowledge effectively. Other relevant factors include various costs and lags involved in changing capital equipment.This ability can be expected to depend on human capital, comprising factors such as education. experience and other skills (Welch 1978). In a farming situation. if there is a change in the economic environment. while the technology and the physical environment remain unchanged, resource allocations require adjustment. Mocative efficiency2 requires the knowledge of the parameters of the production function as well as market information. Farmers with long experience in the use of a particular technology in a given physical environment can be expected to know these technical parameters. Therefore, the capacity to adjust to disequilibria caused by changes in the economic environment will primarily depend on the ability and skill to decode and analyse market information.However. a change in the technology or the physical environment requires the farmer to understand the parameters of the new production function. Technological change requires farmers to seek, *With theusual caveat. theauthon thank colleaguesin the Department ofEconomics, RSPacS, Australian National University, particularly Dn K. P. Kalirajan and R. T.Shand, and two referees oi this Journal for helpful comments and suggestions.

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