Abstract
Using a model based on a trade-off between moral hazard incentives and gains from specialization, this paper explains why farming has generally not converted from small, family-based firms into large, factory-style corporate firms. Nature is both seasonal and random, and the interplay of these qualities generates moral hazard, limits the gains from specialization, and causes timing problems between stages of production. By identifying conditions in which these forces vary, we derive testable predictions about the choice of organization and the extent of farm integration. To test these predictions we study the historical development of several agricultural industries and analyze data from a sample of over 1,000 farms in British Columbia and Louisiana. In general, seasonality and randomness so limit the benefits of specialization that family farms are optimal, but when farmers are successful in mitigating the effects of seasonality and random shocks to output, farm organizations gravitate toward factory processes and corporate ownership.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 343-386 |
| Number of pages | 44 |
| Journal | Journal of Law and Economics |
| Volume | 41 |
| Issue number | 2 |
| State | Published - Oct 1998 |
| Externally published | Yes |
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ASJC Scopus subject areas
- Law
- Economics and Econometrics
Cite this
The nature of the farm. / Allen, Douglas W.; Lueck, Dean L.
In: Journal of Law and Economics, Vol. 41, No. 2, 10.1998, p. 343-386.Research output: Contribution to journal › Article
}
TY - JOUR
T1 - The nature of the farm
AU - Allen, Douglas W.
AU - Lueck, Dean L
PY - 1998/10
Y1 - 1998/10
N2 - Using a model based on a trade-off between moral hazard incentives and gains from specialization, this paper explains why farming has generally not converted from small, family-based firms into large, factory-style corporate firms. Nature is both seasonal and random, and the interplay of these qualities generates moral hazard, limits the gains from specialization, and causes timing problems between stages of production. By identifying conditions in which these forces vary, we derive testable predictions about the choice of organization and the extent of farm integration. To test these predictions we study the historical development of several agricultural industries and analyze data from a sample of over 1,000 farms in British Columbia and Louisiana. In general, seasonality and randomness so limit the benefits of specialization that family farms are optimal, but when farmers are successful in mitigating the effects of seasonality and random shocks to output, farm organizations gravitate toward factory processes and corporate ownership.
AB - Using a model based on a trade-off between moral hazard incentives and gains from specialization, this paper explains why farming has generally not converted from small, family-based firms into large, factory-style corporate firms. Nature is both seasonal and random, and the interplay of these qualities generates moral hazard, limits the gains from specialization, and causes timing problems between stages of production. By identifying conditions in which these forces vary, we derive testable predictions about the choice of organization and the extent of farm integration. To test these predictions we study the historical development of several agricultural industries and analyze data from a sample of over 1,000 farms in British Columbia and Louisiana. In general, seasonality and randomness so limit the benefits of specialization that family farms are optimal, but when farmers are successful in mitigating the effects of seasonality and random shocks to output, farm organizations gravitate toward factory processes and corporate ownership.
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UR - http://www.scopus.com/inward/citedby.url?scp=11544273951&partnerID=8YFLogxK
M3 - Article
AN - SCOPUS:11544273951
VL - 41
SP - 343
EP - 386
JO - Journal of Law and Economics
JF - Journal of Law and Economics
SN - 0022-2186
IS - 2
ER -