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Do Production Contracts Raise Farm Productivity? An Instrumental Variables Approach

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  • Key, Nigel D.
  • McBride, William D.

Abstract

Estimating how the use of production contracts affects farm productivity is difficult when unobservable factors are correlated with both the decision to contract and productivity. To account for potential selection bias, this study uses the local availability of production contracts as an instrument for whether a farm uses a contract in order to estimate the impact of contract use on total factor productivity. Results indicate that use of a production contract is associated with a large increase in productivity for feeder-to-finish hog farms in the United States. The instrumental variable method makes it credible to assert that the observed association is a causal relationship rather than simply a correlation.

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File URL: http://purl.umn.edu/45659
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Bibliographic Info

Article provided by Northeastern Agricultural and Resource Economics Association in its journal Agricultural and Resource Economics Review.

Volume (Year): 37 (2008)
Issue (Month): 2 (October)
Pages:

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Handle: RePEc:ags:arerjl:45659

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Web page: http://www.narea.org/
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Related research

Keywords: productivity; production contracts; instrumental variables; sample selection; Productivity Analysis;

References

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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  1. McBride, William D. & Key, Nigel D., 2003. "Economic And Structural Relationships In U.S. Hog Production," Agricultural Economics Reports 33971, United States Department of Agriculture, Economic Research Service.
  2. Gillespie, Jeffrey M. & Davis, Christopher G. & Rahelizatovo, Noro C., 2004. "An Evaluation of U.S. Hog Producer Preferences Toward Autonomy," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 36(03), December.
  3. repec:fth:prinin:455 is not listed on IDEAS
  4. Key, Nigel D., 2004. "Agricultural Contracting and the Scale of Production," Agricultural and Resource Economics Review, Northeastern Agricultural and Resource Economics Association, vol. 33(2), October.
  5. Joshua Angrist & Alan B. Krueger, 2001. "Instrumental Variables and the Search for Identification: From Supply and Demand to Natural Experiments," NBER Working Papers 8456, National Bureau of Economic Research, Inc.
  6. Martinez, Stephen W. & Smith, Kevin E. & Zering, Kelly D., 1998. "Analysis Of Changing Methods Of Vertical Coordination In The Pork Industry," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 30(02), December.
  7. Leung, Siu Fai & Yu, Shihti, 1996. "On the choice between sample selection and two-part models," Journal of Econometrics, Elsevier, vol. 72(1-2), pages 197-229.
  8. David A. Hennessy, 1996. "Information Asymmetry as a Reason for Food Industry Vertical Integration," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(4), pages 1034-1043.
  9. MacDonald, James M. & Perry, Janet E. & Ahearn, Mary Clare & Banker, David E. & Chambers, William & Dimitri, Carolyn & Key, Nigel D. & Nelson, Kenneth E. & Southard, Leland W., 2004. "Contracts, Markets, and Prices: Organizing the Production and Use of Agricultural Commodities," Agricultural Economics Reports 34013, United States Department of Agriculture, Economic Research Service.
  10. Puhani, Patrick A, 2000. " The Heckman Correction for Sample Selection and Its Critique," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 53-68, February.
  11. Catherine J. Morrison Paul & Richard Nehring & David Banker, 2004. "Productivity, Economies, and Efficiency in U.S. Agriculture: A Look at Contracts," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 86(5), pages 1308-1314.
  12. Nigel Key & William McBride, 2003. "Production Contracts and Productivity in the U.S. Hog Sector," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 85(1), pages 121-133.
  13. Key, Nigel D. & McBride, William D. & Mosheim, Roberto, 2008. "Decomposition of Total Factor Productivity Change in the U.S. Hog Industry," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 40(01), April.
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Cited by:
  1. Key, Nigel D. & McBride, William D., 2007. "The Changing Economics of U.S. Hog Production," Economic Research Report 6389, United States Department of Agriculture, Economic Research Service.

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