Nature of the Farm : Revisited

We empirically test the effect of separating ownership and control and its interaction with farmer effort on farm success using USDA-ARMS data. We use a two-stage least squares approach and instrumental variables that proxy participation constraints to binding incentive contracts. We find the interaction of increasing separated ownership and control organization and farmer effort is significantly positive for farm success in grain farms, but insignificant for farm success for livestock farms. Our findings are consistent with the hypotheses described by Allen and Lueck (1998). However, our model predicts that separated ownership and control farms are likely to have superior farm success despite greater exogenous uncertainty and agency costs