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Are There Too Many Farms in the World? Labor Market Transaction Costs, Machine Capacities, and Optimal Farm Size

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  • Andrew D. Foster
  • Mark R. Rosenzweig

Abstract

We show that labor market transaction costs explain why the smallest farms are more efficient than slightly larger farms in most low-income countries and that increases in machine capacity with operational scale result in the globally observed rising upper tail of productivity. We find evidence consistent with these mechanisms using Indian data, and we show that if all Indian farms were at the minimum scale required to maximize the return on land, the number of farms would be reduced by 82% and income per farm worker would rise by 68%.

Suggested Citation

  • Andrew D. Foster & Mark R. Rosenzweig, 2022. "Are There Too Many Farms in the World? Labor Market Transaction Costs, Machine Capacities, and Optimal Farm Size," Journal of Political Economy, University of Chicago Press, vol. 130(3), pages 636-680.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/717890
    DOI: 10.1086/717890
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    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products

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