Agriculture Reference
In-Depth Information
III
EXTENDING THE FRAMEWORK: FARM ORGANIZATION
In part III of the topic (chapters 8 and 9) we extend the analysis of part I to broader
organizational issues in farming. In both chapters we introduce seasonality and timeliness
costs as forces influencing the gains from specialization and the costs of contracting. In
chapter 8 we examine the choice of whether to own or contract for control over assets used
in agriculture. We consider the decision to lease land as well as buildings and equipment.
We develop a model that focuses on gains from specialization, moral hazard and timeliness
costs. Using several different data sets and some historical case studies, we find that farmers
tend to own assets when specialization gains are small and when moral hazard and timeliness
costs are high.
In chapter 9 we examine farm ownership and vertical integration. Farms, unlike most
other modern firms, are still predominantly family businesses, despite the tremendous
technological advances that have taken place over the past century. Furthermore, farms
almost always control all of the biological stages of production. Farming, we argue, is unique
in that nature often limits the gains from specialization in production. Since it takes a year to
produce a single crop of wheat, farmers will avoid specializing in any single task involved
in wheat production. The failure to generate gains from specialization means that elaborate
forms of governance can seldom compete against small family farms due to the transaction
costs that arise from the inevitable separation of ownership and control that arises in large-
scale corporate firms. When the seasonality of nature can be taken out of production, then
farming tends to be organized like most other industries dealing with intermediate goods.
