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Returns to Scale in Agriculture: A Suggested Theoretical Framework

Author

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  • Arianto Patunru

    () (LPEM, Faculty of Economics and Business, University of Indonesia)

Abstract

Standard economic theory suggests that increasing returns come from indivisible f ixed assets. However, many analysts argue that the long run size distribution of machinery, land, structures, irrigation,herds, and flock are continuous. Our objective here is to provide a framework to claim that there are significant returns to scale in agriculture despite the contradictions in past s tudies. We cons ider the impor tance of management ability in production process (Mefford, 1986). The short-run rigidi ties or lumpiness2 of management ability, we believe, would result in scale economies. Therefore, larger farms with higher ability to utilize more will exhibit lower unit costs. We start with behavioral explanation for returns to scale based on the lumpiness of management ability. Next, we develop an econometric model that will allow us to test the behavioral explanation.

Suggested Citation

  • Arianto Patunru, 2007. "Returns to Scale in Agriculture: A Suggested Theoretical Framework," LPEM FEBUI Working Papers 200704, LPEM, Faculty of Economics and Business, University of Indonesia, revised Apr 2007.
  • Handle: RePEc:lpe:wpaper:200704
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    File URL: http://www.lpem.org/repec/lpe/papers/200704.pdf
    File Function: First version, 2007
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    More about this item

    Keywords

    Returns to Scale;

    JEL classification:

    • H40 - Public Economics - - Publicly Provided Goods - - - General

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