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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

Abstract

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.

Suggested Citation

  • Yu, Li & Orazem, Peter, 2011. "O-Ring Production on U.S. Hog Farms: Joint Choices of Farm Size, Technology, and Compensation," Staff General Research Papers Archive 12992, Iowa State University, Department of Economics.
  • Handle: RePEc:isu:genres:12992
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    References listed on IDEAS

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    More about this item

    Keywords

    complementarity; human capital; sorting; technology; farm size; Wages; hogs; O-ring; unobserved skill;

    JEL classification:

    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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