How the U.s. Farm Firm Has Evolved: a Conceptual Framework
Abstract: Farm organization literature often focuses on the farm firm as a simple entity, where ownership and control is largely combined, a large amount of contractual relationships are informal, and optimal organizational choice can be examined using comparative static analysis. In this paper, we suggest a framework in which we distinguish how some U.S. farm firms have evolved to be a different organizational form in the 20th century. These differences include more separation of ownership and control, more formality, and more complexity. Farm firm evolution involves more complexity because of the interdependency of farm firms to improve performance and the addition of property rights to the farm manager to reduce transaction costs. Because of the assumptions on farm firm simplicity (lack of interdependency), and limiting discussion of optimal farm organization choice to the land and employment transaction, the current frameworks in the literature may fail to understand the evolution of farm organization. We develop a conceptual framework that incorporates the important dimensions to understand farm firm evolution.
