Prices, Technology, and Farm Size

Abstract

In this paper we construct and empirically test a theory of the agricultural firm which explains the long-term growth in farm size in the United States. Typically the U.S. farm unit is a family enterprise. Consequently the ratio of the opportunity cost of farm labor to the price of machinery services determines the size of the farm operation by influencing the machine-labor ratio. Applying the model to U.S. data, we explain virtually all of the growth in the machine-labor ratio and in farm size over the 1930-70 period by changes in relative factor prices without reference to technological change or economies of scale.