Title

O-Ring production on U.S. hog farms: joint choices of farm size, technology, and compensation

Campus Units

Economics

Document Type

Article

Publication Version

Submitted Manuscript

Publication Date

7-2014

Journal or Book Title

Agricultural Economics

Volume

45

Issue

4

First Page or Article ID Number

431

Last Page

442

DOI

10.1111/agec.12097

Abstract

We hypothesize that hog production can be characterized by complementarities between new technologies, worker skills, and farms size. Such production processes are consistent with Kremer's O-ring production theory in which a single mistake in any one of several complementary tasks in a firm's production process can lead to catastrophic failure of the product's value. In hog production, mistakes that introduce disease or pathogens into the production facility can cause a total loss of the herd. Consistent with predictions derived from the O-ring theory, we provide evidence that the most skilled workers concentrate in the largest and most technologically advanced farms and are paid more than comparable workers on smaller farms. These findings suggest that worker skills, new technologies, and farm size are complements in production. The complementarities create returns to scale to large hog confinements, consistent with the dramatic increase in market share of very large farms over the past 20 years.

JEL Classification

O33, Q12, Q16

Comments

This is a working paper of an article from Agricultural Economics 45 (2014): 431, doi: 10.1111/agec.12097.