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O-Ring Production on U.S. Hog Farms: Joint Choices of Farm Size, Technology, and Compensation


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  • Yu, Li
  • Orazem, Peter


� We hypothesize that hog production can be characterized by complementarities between new technologies, worker skills and farms size.� Such production processes are consistent with Kremer’s (1993) O-ring production theory in which a single mistake in any one of several complementary tasks in a firm’s production process can lead to catastrophic failure of the product’s value.� In hog production, mistakes that introduce disease or pathogens into the production facility can cause a total loss of the herd.� Consistent with predictions derived from the O-ring theory, we provide evidence that the most skilled workers concentrate in the largest and most technologically advanced farms and are paid more than comparable workers on smaller farms.� These findings suggest that worker skills, new technologies and farm size are complements in production.� The complementarities create returns to scale to large hog confinements, consistent with the dramatic increase in market share of very large farms over the past 20 years.

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Bibliographic Info

Paper provided by Iowa State University, Department of Economics in its series Staff General Research Papers with number 12992.

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Date of creation: 28 Jan 2011
Date of revision:
Publication status: Forthcoming in Agricultural Economics
Handle: RePEc:isu:genres:12992

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Keywords: complementarity; human capital; sorting; technology; farm size; Wages; hogs; O-ring; unobserved skill;

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  1. Iranzo, Susana & Schivardi, Fabiano & Tosetti, Elisa, 2006. "Skill Dispersion and Firm Productivity: An Analysis with Employer-Employee Matched Data," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5539, C.E.P.R. Discussion Papers.
  2. Daron Acemoglu, 2000. "Technical Change, Inequality, and the Labor Market," NBER Working Papers 7800, National Bureau of Economic Research, Inc.
  3. Timothy Dunne & Lucia Foster & John Haltiwanger & Kenneth R. Troske, 2004. "Wage and Productivity Dispersion in United States Manufacturing: The Role of Computer Investment," Journal of Labor Economics, University of Chicago Press, University of Chicago Press, vol. 22(2), pages 397-430, April.
  4. Sophia Rabe-Hesketh, 2007. "Multilevel modeling of complex survey data," West Coast Stata Users' Group Meetings 2007, Stata Users Group 14, Stata Users Group.
  5. McBride, William D. & Key, Nigel D., 2003. "Economic And Structural Relationships In U.S. Hog Production," Agricultural Economics Reports, United States Department of Agriculture, Economic Research Service 33971, United States Department of Agriculture, Economic Research Service.
  6. Hurley, Terrance M. & Kliebenstein, James & Orazem, Peter, 1999. "The Structure of Wages and Benefits in the U.S. Pork Industry," Staff General Research Papers, Iowa State University, Department of Economics 1475, Iowa State University, Department of Economics.
  7. Abdulai, Awudu & Huffman, Wallace, 2007. "The Diffusion of New Agricultural Technologies: The Case of Crossbreeding Technology in Tanzania," Staff General Research Papers, Iowa State University, Department of Economics 12785, Iowa State University, Department of Economics.
  8. Sophia Rabe-Hesketh & Anders Skrondal & Andrew Pickles, 2004. "GLLAMM Manual," U.C. Berkeley Division of Biostatistics Working Paper Series, Berkeley Electronic Press 1160, Berkeley Electronic Press.
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