IT has long been suspected that price uncertainty may cause allocative inefficiency in farm operation.' This may be especially true for small farms since they cannot afford expert economic advice (Schultz, 1964, p. 118). It is also a common understanding that output uncertainty may reduce allocative efficiency.2 Therefore, if prices and output are known with less uncertainty, farmers should allocate their resources more efficiently. This study is intended to investigate empirically such a relation.3 The data are for the small-scale family farms of Taiwan in the mid-sixties drawn from three mixed farming regions of the island.4 Most of the family farms of Taiwan grow rice alongwith other crops. The extent to which a farm is engaged in rice farming may be measured by a ratio of rice income to total crop income, to be referred to as the rice income ratio. Due to government price stabilization policies on rice, rice prices have been the most stable among almost all crops.5 The unit yield of the rice crop had also increased rather steadily before 1967 while that of other crops showed much larger year to year variations.6 Rice farming in Taiwan thus involves less price and output uncertainty than other crops. It seems reasonable to assume that a farm with a larger rice income ratio is involved in a lesser extent of price and output uncertainty and the variable rice income ratio can be used as a proxy of the degree of price and output certainty facing each farm. When this variable is related to allocative efficiency, it is therefore expected to have a favorable effect on the latter due to less price and output uncertainty.

N his well-known review of the human capital approach to the study of income distribution Jacob Mincer makes the point that . . a better understanding of the relation between and earnings requires an understanding of the factors determining investment (1970, p. 18). The importance of this point has been lost somewhat in the past few years with the plethora of empirical examinations of the relationship between years of schooling (as the measure of human capital investment) and earnings. Nevertheless, it is clear that if schooling is itself the result of optimizing rather than random behavior, the typical earnings regression will overstate the contribution of schooling to earnings. A simple model that explains interpersonal differences in investments in formal schooling has been developed by Becker (1967, 1975) with more formal extensions of this model having been presented by Ben-Porath (1967) and Wallace and Ihnen (1975). Basically, Becker's model views the individual as maximizing the present value of his net earnings over the life cycle by investing in formal schooling up to the point at which the marginal rate of return from the equals the marginal financing costs. This may, in turn, be expressed in a conventional demand-supply framework. The demand for schooling is the product of two factors: the expectation of returns from a particular. level of schooling achievement and the probability that the particular individual will in fact succeed in attaining this level.' The first factor is largely determined by the exogenous forces of the labor market where individual differences arise because of imperfect knowledge. The second is largely a function of individual'capacities (ability), the schooling environment, and the extent to which the individual believes the schooling environment and curriculum will actually lead to an increase in his stock of human capital. The supply side of the model reflects the opportunity for which is determined, in large part, by the availability of financing funds. For youths enrolled in high school the major economic decision they face is whether to continue with the formal educational process. The primary alternatives to schooling are full-time participation in the labor force, service in the Armed Forces, marriage and work within the household. The data indicate that these alternatives are chosen, in varying degrees to the extent that only 75% of a schooling cohort that entered the fifth grade in 1964 graduated from high school in 1972 (U.S. Department of HEW, 1974, p. 14). A sizable proportion of young adults, therefore, terminate their educational before the completion of high school. This decision to drop out of high school has seemed to arouse considerable public and private concern. While there is now some evidence and concern regarding an overinvestment in college training (Freeman, 1975), the fact that young people drop out of high school usually raises the spectre of increased crime, drug usage, unemployment and a general alienation of youth from the adult community. The public result of this. concern has been a variety of dropout prevention programs which have been supported under Title VIII of the Elementary and Secondary Education Act together with a provision' of the Vocational Education Act. which directs Federal monies to areas of high need, including local areas with a high concentration of school dropouts. A variety of instructional methods have been supported in the dropReceived for publication May 9, 1977. Revision accepted for publication February 15, 1978. * University of South Carolina. The research reported herewas supported by the Office of the Assistant Secretary for Planning and Evaluation, Department of Health, Education and Welfare. That support, together with the comments of Caroline Clotfelter, Susan Cochrane, Elchanan Cohn, Linda Edwards, Robert Hauser and two anonymous referees, is gratefully acknowledged. The computational assistance of Jane Lee was also of great help. The conclusions expressed here do not necessarily reflect the position of the sponsoring agency. I This useful distinction is taken from Griliches (1973).

Christos C. Paraskevopoulos, Alternative Estimates of the Elasticity of Substitution: An Inter-Metropolitan CES Production Function Analysis of U.S. Manufacturing Industries, 1958-1972, The Review of Economics and Statistics, Vol. 61, No. 3 (Aug., 1979), pp. 439-442

Yoram C. Peles, Marshall Sarnat, Corporate Taxes and Capital Structure: Some Evidence Drawn from the British Experience, The Review of Economics and Statistics, Vol. 61, No. 1 (Feb., 1979), pp. 118-120

Robert C. Vogel, Robert P. Trost, The Response of State Government Receipts to Economic Fluctuations and the Allocation of Counter-Cyclical Revenue Sharing Grants, The Review of Economics and Statistics, Vol. 61, No. 3 (Aug., 1979), pp. 389-400

Charles C. Baker, Jr., Anthony J. Vignola, Market Liquidity, Security Trading, and the Estimation of Empirical Yield Curves, The Review of Economics and Statistics, Vol. 61, No. 1 (Feb., 1979), pp. 131-135

Raymond C. Battalio, John H. Kagel, Robin C. Winkler, Richard A. Winett, Residential Electricity Demand: An Experimental Study, The Review of Economics and Statistics, Vol. 61, No. 2 (May, 1979), pp. 180-189