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Conceptualisation of family farms’ flexibility

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  • Renner, Swetlana
  • Pieniadz, Agata

Abstract

Agricultural enterprises in transition countries face dynamic changes in the prevailing economic, legal and political conditions. The success of an enterprise depends on its ability to adjust its farming system in response to these changing conditions. To meet this challenge, flexible and adaptable production technology is required. Thus, the farm’s choice of technology is an important decision which determines its future performance. Although the concept of a firm’s flexibility is widely analysed in microeconomics literature, there is no comprehensive framework to facilitate the analysis of family farms’ flexibility, especially considering market imperfections and other obstacles associated with the transition process. In this paper we formulate the theoretical framework for flexibility analysis in order to investigate the impact of farm-specific characteristics on optimal flexibility design and to explain the differences between farms using different production technologies. In a simplified formal model, a competitive risk-averse firm producing one product is assumed to face fluctuating demand under uncertainty. By choosing the level of flexibility, the decision-maker determines the technology of the firm, expressed by the cost function. The optimal level of flexibility will be found by backward induction in the two-stage decision-making process, including ex ante technology decision and ex post output level decision. Using comparative statics and existing theoretical literature, some hypothesis about the relationship between flexibility and other firm characteristics will be formalised. Some possible model extensions that account for specific characteristics of the family farm business in transition countries, as well as future empirical analysis are discussed.

Suggested Citation

  • Renner, Swetlana & Pieniadz, Agata, 2008. "Conceptualisation of family farms’ flexibility," 2008 International Congress, August 26-29, 2008, Ghent, Belgium 44126, European Association of Agricultural Economists.
  • Handle: RePEc:ags:eaae08:44126
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    File URL: http://purl.umn.edu/44126
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    References listed on IDEAS

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    1. Mills, David E & Schumann, Laurence, 1985. "Industry Structure with Fluctuating Demand," American Economic Review, American Economic Association, vol. 75(4), pages 758-767, September.
    2. Zeller, Manfred & Robison, Lindon J, 1992. "Flexibility and Risk in the Firm," European Review of Agricultural Economics, Foundation for the European Review of Agricultural Economics, vol. 19(4), pages 473-484.
    3. Mills, David E, 1984. "Demand Fluctuations and Endogenous Firm Flexibility," Journal of Industrial Economics, Wiley Blackwell, vol. 33(1), pages 55-71, September.
    4. Weiss, Christoph R., 2001. "On flexibility," Journal of Economic Behavior & Organization, Elsevier, vol. 46(3), pages 347-356, November.
    5. Zimmermann, Klaus F., 1995. "Flexibility in the face of demand fluctuations: Employment, capacity utilization, and industry structure," International Journal of Industrial Organization, Elsevier, vol. 13(2), pages 179-193.
    6. Das, Bhaskar J & Chappell, William F & Shughart, William F, II, 1993. "Demand Fluctuations and Firm Heterogeneity," Journal of Industrial Economics, Wiley Blackwell, vol. 41(1), pages 51-60, March.
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    Keywords

    flexibility; output price risk; family farms; Farm Management;

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