Intergenerational Transfers by Farmers under Different Institutional Environments

This research studies the issues of intergenerational transfers in general and farm succession in particular in two different institutional environments. One is the relatively unregulated farm sector in the United States, and the other is the heavily regulated family farms in Israeli moshavim. Most of the analysis is based on modern economic theory dealing with inheritance and other intergenerational issues. However, we start with two background studies. One is a review of the legal system affecting farm succession in the moshav, which, as we claim throughout the report, is of major importance to the question in hand. The second is an ethnographical study aimed at documenting various inheritance and succession practices in different moshavim. These two studies provide insight for most of the economic studies included here. The theoretical studies mostly deal with various aspects of two major decisions faced by farmers: who will succeed them on the farm, and when will succession take place. The first decision clearly depends on the institutional structure: for instance, Israeli farmers are limited to one successor while American farmers are not. The second decision can be taken in three stages: sharing farm work with the successor, sharing farm management, and eventually transferring the ownership. The occurrence and length of each stage depend on the first decision as well as on the institutional structure directly. The empirical studies are aimed at analyzing the practices and considerations of Israeli and American farmers regarding various intergenerational transfers-related issues. We found that American farmers' decisions are mainly driven by the desire to let the farm prosper in future generations and by a preference for equal treatment of heirs, and not at all by old-age support considerations. In contrast, we demonstrate the significant effect of old-age support on the value of the transferred farm in a sample of Israeli farms. Using Israeli census data, we find that the time of farm ownership transfer responds to economic incentives. A smaller Israeli panel data set shows that controlling for the occurrence of succession, farm size rises with operator's age and eventually falls, while intensity of production seems to decline steadily. This explains another finding, that farm transfer contributed significantly to farm growth when farming was attractive to successors. This finding supports our main conclusion, that the succession decisions are of major importance to the viability and profitability of family farms over the long run.