Empirical Analysis of the Size Distribution of Farms: Discussion

Abstract

to this model most recently by exploring the implication of the assumption that managers are heterogenous. (See Brock and Evans for a review of Lucas, Kihlstrom and Laffont, and Jovanovic, which are the major papers.) These models have motivated several empirical studies. Evans (1987a) tests some of the assumptions and implications of alternative theories of firm growth using data on a cross section of firms. Blau, Brock and Evans, Evans (1985), and Rees and Shah use data on self-employed workers to test Lucas' managerial ability model and to examine the effect of human capital variables on firm size. Sumner and Leiby have made a useful contribution to this empirical literature for at least two reasons. (The other papers in this session are also valuable case studies of firm growth. My comments are restricted to Sumner and Leiby because this paper is most closely related to my own research.) The first is that their study is done at a much finer level of detail than are the papers cited above, which generally pool observations across industries and occupations. The second is that their empirical constructs have a closer connection to the theoretical constructs than is often the case in this literature. Several interesting empirical findings do emerge from Sumner and Leiby's research. First, farm growth decreases with farm size. This result is consistent with most of the studies of firm growth that have included small firms. See Evans (1987a, b) and Hall for some recent results that control for sample selection. Second, farm growth decreases at a diminishing rate with the owner's farming experience. This result is consistent with my work on the relationship between firm growth and firm age which also finds a convex relationship (firm age in my studies is analogous to operator experience in Sumner and Leiby's study). Third, farm size increases with the owner's age and farming experience. The age relationship is consistent with Rees and Shah, who find that self-employment earnings increase (although at a diminishing rate) with age. The experience relationship is broadly consistent with preliminary results by myself and Leighton for self-employed workers. We find that self-employment earnings (one measure of firm size) increase with the length of time the owner has operated his business. (These results are based on data drawn from the National Longitudinal Survey of Young Men.) Fourth, farm growth increases with the owner's age holding experience constant. This result is new as far as I know.