TY  - JOUR
AU  - Foster, Andrew D
AU  - Rosenzweig, Mark R
TI  - Are There Too Many Farms in the World? Labor-Market Transaction Costs, Machine Capacities and Optimal Farm Size
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 23909
PY  - 2017
Y2  - October 2017
DO  - 10.3386/w23909
UR  - http://www.nber.org/papers/w23909
L1  - http://www.nber.org/papers/w23909.pdf
N1  - Author contact info:
Andrew Foster
Department of Economics and Community Health
Brown University
64 Waterman Street
Providence, RI 02912
Tel: 401/863-2537
E-Mail: afoster@brown.edu

Mark Rosenzweig
Department of Economics
Yale University
Box 208269
New Haven, CT 06520
Tel: 203/432-3588
E-Mail: mark.rosenzweig@yale.edu
M2  - featured in NBER digest on 2017-11-30
AB  - This paper seeks to explain the U-shaped relationship between farm productivity and farm scale - the initial fall in productivity as farm size increases from its lowest levels and the continuous upward trajectory as scale increases after a threshold - observed across the world and in low-income countries. We show that the existence of labor-market transaction costs can explain why the smallest farms are most efficient, slightly larger farms least efficient and larger farms as efficient as the smallest farms. We show that to explain the rising upper tail of the U characteristic of high-income countries requires there be economies of scale in the ability of machines to accomplish tasks at lower costs at greater operational scales. Using data from the India ICRISAT VLS panel survey we find evidence consistent with these conditions, suggesting that there are too many farms, at scales insufficient to exploit locally-available equipment-capacity scale-economies.
ER  -