Inverse productivity : land quality, labor markets, and risk

I test three explanations of the inverse productivity relationship using the ICRISAT data. I reject land quality differences as a cause of the inverse relationship between profits per hectare and farm size. I find that both labor-market imperfections and risk aversion may play a role in explaining the inverse productivity relationship. Smaller farmers use more labor per-hectare than larger farmers, although the relationship is ameliorated somewhat by considering land-quality effects. Risk aversion may cause smaller farmers to over-apply labor to production, but it also fails to fully explain the inverse relationship.