Scale‐Economy Conditions for Spatial Variation in Farm Size

Abstract

Given the usual neoclassical assumptions of economic rationality, perfect competition, long‐term spatial equilibrium, a Thunian context, and perfectly divisible labor and capital, this paper expresses economies of scale in farming in terms of the yield derived from a given level of intensity. If yield increases as farm scale increases, there are economies of scale. If yield decreases, there are diseconomies of scale. The literature on scale economies in agriculture suggests that scale economies accrue from increases in capital inputs, but diseconomies occur as a result of increases in farm area. The models of the spatial structure of agriculture, with farm size included, show the following: 1. Unless there are economies of scale giving way to diseconomies of scale with increases in farm size, no optimal farm area or farm scale can be defined; 2. If the optimal intensity for farming does not vary over space, the optimal farm scale or area should be constant over space; 3. If intensity varies spatially, and if the optimal economies of scale are a function of area only, farm areas should not vary spatially, and sales volume per farm should increase as market access and fertility increase; 4. It is only if intensity varies spatially and optimal scale economies are a function of both area and total quantities of nonland inputs per farm that farm area should increase as distance to market increases or fertility decreases. In this last case, quantities of nonland inputs per farm should also decrease, and usually sales volume per farm should decrease also.