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Submitted by Sam Asher on

I was at a recent conference on structural transformation at Yale, at which Andrew Foster and Mark Rosenzweig presented a new (not yet) paper called Input Transaction Costs, Mechanization, and the Mis-allocation of Land: The Irrelevance of the IR. They've been working on this topic for a while and across a series of different papers, but the punchline here is that there's a U shaped relationship that is generally missed because surveys don't measure enough farms above 10 acres, which is where increasing returns to scale start to kick in in their data. They rationalize this with a model of fixed costs in hiring outside labor but also increasing returns to scale in capital (think bigger, more efficient tractors) that generate first a part of the farm size distribution with decreasing returns as farmers switch from inside to outside labor, then increasing returns as they mechanize more and more.