ARE LARGE FARMS MORE EFFICIENT?

Accurate estimates of returns to scale require that inputs and output are measured without error and that environmental and managerial differences among firms of varying sizes are taken into account. Measurement problems affecting estimates of returns to scale in agriculture include: (1) combining the farm dwelling with capital inputs, (2) correlation of environmental and management characteristics with size and (3) the effect of off-farm employment on small farm output and production costs. Estimates of long run average total cost curves for farms in the corn belt reveal that after the above factors are taken into account, estimated scale economies in agriculture disappear, while there is evidence of diseconomies as farm size increases.