Agriculture Reference
In-Depth Information
depends in part on the net effect of these two costs. Other things equal, corporate-factory
farms tend to emerge where large numbers of workers are required and there are many tasks
and large gains to specialization. This is because the costs of monitoring hired labor are
likely to rise more slowly with
than the moral hazard effect caused by sharing output.
18
T
V
FC
to be higher than
V
P
and would mean that for large values of
This would lead
α
,
factory-corporate farms (with specialized wage labor) would tend to dominate.
Another comparative static result arises from changes in the number of tasks
(T)
. Panel
(b) of figure 9.2, which assumes that specialization gains are as high as possible
(α
=
1
)
,
V
P
varies with changes in
shows how
T
for three different values of
N
. Family farms are the
special case, where
1. Taking into account any differences in the level of task effort for
the different size farms, we find that the more partners there are, the lower total task effort
is on the farm, which lowers
N
=
V
P
. The value functions are flat as long as
N>T
, because
specialization is maximized when
N
≥
T
. In the case of a single task
(T
=
1
)
, it must be
V
F
>V
P
, unless there is a large capital saving to overwhelm the partnership
moral hazard. In addition, the optimal number of owners
the case that
(N)
for a given number of tasks
(T)
is given by the upper envelope of these curves, which shows that the number of owners
is positively related to the number of tasks.
There are similar comparative statics results that explain how timelines costs can deter-
mine the extension of the farm into various stages of production. Panel (c) of figure 9.2
shows how the values of the integrated and market farms vary with changes in crop sen-
sitivity
(δ)
. In particular, the relative value of the integrated firm increases in
d
. Similarly,
V
I
changes in uncertainty over the stage length
(L)
also influence the relative values of
V
M
.Foragiven
, increases in this uncertainty increase the relative value of the inte-
grated farm. When crops have greater timeliness costs, the farm is likely to be integrated
over multiple stages. When timeliness is unimportant, the farmer is less likely to control
delivery.
Combining these predictions with others derived earlier we can summarize the predictions
that we can empirically examine. Below we list these predictions in three categories. In table
9.1 we summarize the basic trade-offs in the model for easier reference.
and
δ
Choice of Farm Organization
PREDICTION 9.1
increases, the family farm be-
comes less likely and partnerships and factory-corporate farms become more likely.
As the importance of specialization
(α)
PREDICTION 9.2
As the number of tasks
(T)
increases, the family farm becomes less likely.
PREDICTION 9.3
As the length of a stage
(L)
increases, the family farm becomes less
likely.
