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RISK AND STRUCTURAL CHANGE IN AGRICULTURE: HOW INCOME SHOCKS INFLUENCE FARM SIZE

Michael Roberts () and Nigel Key

No 19661, 2002 Annual meeting, July 28-31, Long Beach, CA from American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association)

Abstract: Farm-level Census data and county-level income shock data reveal that past unexpected income shocks affect the rate of change in average farm size. Average farm size increases more quickly in counties experiencing negative income shocks as compared to counties experiencing positive income shocks. This result cannot be explained by perfect-market models, which predict farm size should adjust according to changes in the relative prices of labor and capital. We posit a model wherein cash flows affect liquidity, which in turn affects farm borrowing and capital costs. In the model, farms that do not face liquidity constraints benefit from negative income shocks because they reduce land values, so these farms expand while liquidity-constrained farms contract. Observed farm consolidation patterns and farm exit rates are consistent with a model wherein liquidity constraints affect small farms more than large farms.

Keywords: Agricultural Finance; Industrial Organization (search for similar items in EconPapers)
Pages: 35
Date: 2002
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Persistent link: https://EconPapers.repec.org/RePEc:ags:aaea02:19661

DOI: 10.22004/ag.econ.19661

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