Higher Capital Endowments Research Articles

Approaching the environmental sustainable value in agriculture: How factor endowments foster the eco-efficiency

Abstract Small and labor-intensive farms guarantee a higher degree of environmental sustainability compared to rich, capital-intensive farms. This paper offers a methodological contribution to the value-based sustainability approach, consisting in computing a modified indicator of environmental sustainable value. Using this approach, the authors test how factor endowments such as capital, land and labor contribute to environmental sustainable value using a long-term panel of region-representative European Union farm accountancy data network farms in 2004–2015. The seminal within-between specification was employed to control time variant and time in-variant space heterogeneity of European regions. The articles main finding is that higher capital endowment and lower labor-intensity is beneficial for environmental sustainable value. The result that farming with higher labor endowment might be less eco-efficient contradicts the commonly known perception of this problem. In light of our findings, we conclude that the pro-investment direction of the common agricultural policy should be followed but one-size-fit-all policy is not working.

Tax Competition and Strategic Delegation with Interregional Asymmetries in Capital Endowment and Income Inequality

This study examines a two-country tax competition model, in which the capital endowment and income inequality are asymmetric in each country. Hwang and Cheo [1] and Peralta and van Ypersele [2] show that when countries differ in capital endowments, the country with the higher capital endowment sets a lower capital tax rate. However, their studies assume that all inhabitants are homogeneous. We extend the models of the two aforementioned studies and conduct an analysis taking into account the asymmetry in income inequality within countries. The tax rate is set by the policy maker elected by majority voting in each country’s election. We find that a higher tax rate may be set in the country with higher capital endowment under certain conditions. Further, if the income inequality is sufficiently large, the median voters in each country unambiguously delegate the right to decide the tax rate to residents who prefer a higher tax rate than their own, regardless of the capital endowments of the two countries.

Economic Development and Relationship-Based Financing

Formal finance involves the costly acquisition of information about distant entrepreneurs, while relationship-based finance allows financiers to fund a narrow circle of close entrepreneurs without acquiring costly information. In developing economies with low capital endowments, relationship-based finance is optimal because only high-quality entrepreneurs receive funding. However, formal finance may emerge in equilibrium, and it has the only effect of shifting rents from entrepreneurs to financiers. In more-developed economies with higher capital endowments, formal finance becomes necessary to prevent funding of low-quality entrepreneurs. Nevertheless, relationship-based financing may persist in equilibrium, and low-quality close entrepreneurs are funded even when there are high-quality distant entrepreneurs.

Connections and Information Acquisition in Capital Allocation

Formal finance involves costly information acquisition about distant entrepreneurs, while relationship-based finance allows financiers to fund a narrow circle of close entrepreneurs without engaging in costly information acquisition. We show that in developing economies with low capital endowments, relationship-based finance is optimal because only high-quality entrepreneurs receive funding. However, formal finance may emerge in equilibrium and has the only effect of shifting rents from entrepreneurs to financiers. In more developed economies with higher capital endowments, formal finance becomes necessary to prevent low-quality entrepreneurs from being funded. Nevertheless, relationship-based financing may persist in equilibrium and capital may be allocated to low-quality close entrepreneurs even when there are high-quality distant entrepreneurs.

Production Risk and Technical Efficiency in Organic and Conventional Agriculture – The Case of Arable Farms in Germany

AbstractThis paper quantifies the importance of production risk and technical efficiency as two possible sources of production variability in German organic and conventional farming. Determinants of production risk and inefficiency are investigated based on a combination of Just and Pope’s stochastic production framework and a Stochastic Frontier Analysis. The empirical analysis is conducted using a balanced panel of farm records from 1999/2000 to 2006/2007 on 37 organic and conventional arable farms, respectively. Euclidian‐Distance‐Matching is used to identify for each organic farm a conventional counterpart with similar structural features. Results indicate that output variability in both production technologies is mainly caused by production risk. Land and labour are identified as risk‐increasing inputs in both farm types whereas higher capital endowment, seed costs and soil quality have risk‐reducing effects.