RISK AND STRUCTURAL CHANGE IN AGRICULTURE: HOW INCOME SHOCKS INFLUENCE FARM SIZE

Farm-level Census data and county-level income shock data reveal that past unexpected income shocks affect the rate of change in average farm size. Average farm size increases more quickly in counties experiencing negative income shocks as compared to counties experiencing positive income shocks. This result cannot be explained by perfect-market models, which predict farm size should adjust according to changes in the relative prices of labor and capital. We posit a model wherein cash flows affect liquidity, which in turn affects farm borrowing and capital costs. In the model, farms that do not face liquidity constraints benefit from negative income shocks because they reduce land values, so these farms expand while liquidity-constrained farms contract. Observed farm consolidation patterns and farm exit rates are consistent with a model wherein liquidity constraints affect small farms more than large farms.


Issue Date:
2002
Publication Type:
Conference Paper/ Presentation
Record Identifier:
http://ageconsearch.umn.edu/record/19661
PURL Identifier:
http://purl.umn.edu/19661
Total Pages:
35
Series Statement:
Selected Paper




 Record created 2017-04-01, last modified 2018-01-22

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