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Modern Value Chains and the Organization of Agrarian Production
Author(s) -
Henderson Heath,
Isaac Alan G.
Publication year - 2017
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1093/ajae/aaw092
Subject(s) - agrarian society , productivity , redistribution (election) , production (economics) , economics , procurement , distribution (mathematics) , welfare , agrarian system , microeconomics , market economy , agriculture , geography , economic growth , political science , mathematics , mathematical analysis , management , archaeology , politics , law
Empirical studies of agrarian production in developing countries often find that small farms possess a productivity advantage over larger farms. Eswaran and Kotwal (1986) famously derive this inverse farm‐size/productivity relationship from the structure of agrarian production. The focal prediction of their model is that, in otherwise equivalent economies, a more egalitarian land distribution raises both output and producer welfare. The traditional (spot) procurement system implicit in the Eswaran and Kotwal model, however, diverges fundamentally from modern (contractual) procurement practices. We therefore develop a new model of agrarian production in order to determine whether the introduction of a modern value chain alters the welfare effects of land redistribution. The inverse farm‐size/productivity relationship persists in our model, but we find that more egalitarian land distribution leads to nonmonotonic changes in producer welfare. We also find that the introduction of a modern sector can harm the laboring classes.