From the pure theoretical perspective, it can confidently be argued that farm size and productivity are negatively related. Small farmers are more efficient and productive than large ones. On the empirical side, such relationship has been documented and confirmed by statistical analysis. While the relationship is very clear-cut and there remains little to bicker on such negative relationship between size and productivity, the explanation offered to explain such negative relationship often provokes ambiguity. One such explanation that seems doubtful is the opportunity cost-based explanation about the negative relation between farm size and productivity.
It is argued that low opportunity costs induce small farmers to use labour intensively than large farmers. The intensive use of labour by small farmers contributes to higher productivity. This explanation seems a bit cloudy partly because what if the small farmers don't have low opportunity costs and partly because the relation might run the other way: the smaller size itself encourages intensive use of labour. The analysis of the latter will cover the former.
The fact that low opportunity costs induce the intensive use of labour doesn't invalidate some definite relationship the intensive use of the labour has with size itself. Small size induces more intensive use of labour and large size less intensive use. To buttress the argument that low opportunity costs cause the intensive use of labour by small farmers, we need to show separate two effects. First, we need to measure the effect of low opportunity costs on the intensive use of labour by small farmers. Second, we need to measure the effect of size itself on the intensive use of labour by small farmers. Then we have to compare the two effects to determine which one dominates.
If the effect of low opportunity costs is higher than the effect of size, then we can conclude that low opportunity costs can satisfactorily explain intensive use of labour by small farmers. If the effect of size on the intensive use of labour by small farmers is higher than the effect of low opportunity costs, then we can't say that small farmers use labour intensively because they have low opportunity costs. This may be more clearly explained as in Box-1.
Now to show the comparative effect of both the opportunity cost and size on the intensive use of labour by small farmers, we calculate the percentage change in land per man hour due to percentage change in opportunity costs, and the percentage change in land per man hour due to percentage change in land per head. This is shown in Box-2.
From the above analysis, we see that if the value of E is positive, then we can claim that small farmers use labour intensively because of low opportunity costs. But if the value of E is negative, then we can't say that small farmers use labour intensively because of low opportunity costs. Rather the size itself induces the intensive use of labour. Professor Abdul Bayes in an article published in The Financial Express "Who are more productive" quoted Mahabub Hossain as saying that he found small farmers using labour intensively because of its low opportunity costs. The intensive use of labour explains the high productivity of small farmers. This opportunity cost-based explanation will retain its validity if the value of E is positive. However, the opportunity cost-based explanation is not tenable when the value of E is negative. For this reason, the explanation of the intensive use of labour by small farmers based on the low opportunity costs seems quite ambiguous unless we get the positive value of E.
It is worthwhile to investigate the possibility of getting the negative value of E. What does it mean when the value of E is negative? The explanation is not as simple as it is in the case of opportunity costs. The negative value of E means size itself induces the intensive use of labour. That means as the size gets smaller, labour is used intensively and as the size gets big, labour is used less intensively. This relationship is embodied into the function f1 above. Why is this so?
We offer two explanations: One is the intrinsic relationship between the size and productivity that is only explained by size only. The other is the sophisticated economisation technique used by agents. It seems that the latter can account for the former. Cost valuation is not same for per man hour for different sizes. An agent will impute higher value on per man hour employed in a bigger size of land than employed in a smaller size of land. This leads to economisation which in turn induces less intensive use of labour by large farmers.
The contributor writes from the University of Denver, USA.
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