Size, Productivity, and Returns to Scale: An Analysis of Farm-Level Data in Indian Agriculture

Abstract

The paper uses individual farm-level data for nearly 1,000 Indian farms to analyze (a) the well-known inverse relationship between farm size and output per acre, (b) returns to scale, and (c) imperfections in the labor market. One major result is that while predominantly wheat areas show constant returns to scale, diminishing returns seem to prevail in predominantly paddy areas. But both in paddy and wheat agriculture the observed negative relation between output per acre and farm size is likely to be the result more of an inverse relation between size and other inputs than of scale diseconomies. In the last section of the paper we discuss factors that may have contributed to this inverse relation, some of these involving production uncertainty in agriculture and some others involving the interlinked phenomenon of land- and labor-market imperfections.