Do family farms really converge to a uniform size? The role of unobserved farm efficiency

Yuval Dolev, Ayal Kimhi*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Scopus citations

Abstract

We analyse the growth of family farms in Israeli cooperative villages during a period of economic turmoil. We use instrumental variables to account for the endogeneity of initial farm size, and correct for selectivity as a result of farm survival. We also include a technical efficiency index, derived from the estimation of a stochastic frontier production model, as an explanatory variable. Our aim is to check whether ignoring efficiency could have been the reason for convergence results obtained elsewhere in the literature. We found that technical efficiency is an important determinant of farm growth, and that not controlling for technical efficiency could seriously bias the results. In particular, larger farms are found to grow faster over time, while without controlling for technical efficiency the farm growth process seemed to be independent of initial farm size. The increasing polarisation of farm sizes in Israel has ramifications for the inefficiencies induced by the historical quota system, for the political power of the farm sector and for the social stability of farm communities.

Original languageAmerican English
Pages (from-to)119-136
Number of pages18
JournalAustralian Journal of Agricultural and Resource Economics
Volume54
Issue number1
DOIs
StatePublished - Jan 2010

Keywords

  • Farm growth
  • Farm size
  • Farm survival
  • Instrumental variables
  • Sample selection
  • Technical efficiency

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