The Nature of the Farm

Posted: 24 Sep 1998

See all articles by Douglas W. Allen

Douglas W. Allen

Simon Fraser University

Dean Lueck

Indiana University Bloomington - The Vincent and Elinor Ostrom Workshop in Political Theory & Policy Analysis; Indiana University

Abstract

Using a model based on a tradeoff 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.

JEL Classification: D2, L2, Q1

Suggested Citation

Allen, Douglas W. and Lueck, Dean, The Nature of the Farm. Journal of Law and Economics, Vol. 41, No. 2, October 1998. Available at SSRN: https://ssrn.com/abstract=117597

Douglas W. Allen

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Columbia V5A 1S6
Canada
604-291-3445 (Phone)
604-291-5944 (Fax)

Dean Lueck (Contact Author)

Indiana University Bloomington - The Vincent and Elinor Ostrom Workshop in Political Theory & Policy Analysis ( email )

513 N. Park Avenue
Bloomington, IN 47408–3895
United States

HOME PAGE: http://https://ostromworkshop.indiana.edu/people/directors/lueck-dean.html

Indiana University ( email )

107 S Indiana Ave
100 South Woodlawn
Bloomington, IN 47405
United States

HOME PAGE: http://https://economics.indiana.edu/home/people/lueck/

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