Institutional inefficiency: small farms starve India’s economy

Purpose - The purpose of this paper is to examine differences in property institutions in the USA and India and their effects on agricultural productivity. Design/methodology/approach - This paper undertakes a case study of industrial organization of agriculture, comparing agricultural development in the USA and India, with a focus on changes in farm size over time. Findings - In the USA, unlimited individual land ownership has enabled the gradual, long-term development of scale economies in agriculture through the application of capital and technology. In contrast, land reforms in India, especially land ceilings that limit farm size, have stunted productivity growth in agriculture by limiting achievement of scale economies and capital formation. Practical implications - The finding that India’s consistently meager agricultural productivity stems largely from legal limitations on land ownership indicates that reforms that create a US-style open-ended land ownership structure would greatly increase farm productivity and total crop output in India. Originality/value - This paper presents a side-by-side analysis of the USA and India and their radically different paths of agricultural development over time, and connects these divergent outcomes directly to the underlying institutional framework of property rights. Moreover, the paper analyzes the prospects for pro-market reform in light of public choice political economy, specifically applying Tullock’s insights regarding the “transitional gains trap.”