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Do Production Contracts Raise Farm Productivity? An Instrumental Variables Approach

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

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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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
Contact details of provider: Web page: http://www.narea.org/

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  1. Leung, S.F. & Yu, S., 1992. "On the Choice Between Sample Selection and Two-Part Models," RCER Working Papers 337, University of Rochester - Center for Economic Research (RCER).
  2. Hennessy, David A., 1996. "Information Asymmetry As a Reason for Food Industry Vertical Integration," Staff General Research Papers 5032, Iowa State University, Department of Economics.
  3. 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.
  4. 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.
  5. 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.
  6. 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.
  7. 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.
  8. 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.
  9. 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.
  10. 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.
  11. 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.
  12. 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.
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