Management and returns to scale in agriculture

Abstract

The problem of treating management as an explanatory variable in agricultural production function has not yet been solved satisfactorily mainly because of the lack of a generally accepted cardinal measure. Only a few agricultural production function analyses are known to have included management as an explanatory variable. These investigations have specified management in different ways under a diversity of assumptions and obtained different kinds of results even with comparable situations. The objective of this article is to present a critical review of the theoretical meaning of management and of the effectiveness of different ways of treating management in empirical investigations. I The term management is conventionally considered as consisting of two parts: coordination or entrepreneurship and supervision. The existence of the firm as a decision making unit and the need for co-ordination grows out of dynamic situations, changes in factor and product prices, and other uncertainties. Important steps in co-ordination include expectation about the future, plans, action, and acceptance of consequences. If everything were known with certainty, the firm as an entity would not arise and there would be no need for co-ordination although production would still take place. Once the basic decisions about production are made, the managerial activity reduces to routine management or supervision. Therefore, co-ordination or strategic management may be taken as true management (4, pp. 67-8; 12, pp. 465-7; 19, pp. 386-405). Practically, it may be difficult to distinguish clearly between co-ordination and supervision but, theoretically, from Marshall’s (21, pp. 618-24) classification of profits as consisting of two parts: normal profits or wages of routine management which enters into long-run supply price, and extraordinary profits, it follows that the premium for co-ordination or risk taking is in reality a ‘quasi rent’ or ‘producer’s surplus due to rare natural qualities.