Did you actually read our paper? Nowhere do we assume profit maximization. The empirical results in our paper are not based on any microeconomic model: We regress the logarithm of rice yield on a bunch of control variables, including some soil quality measurements and household fixed effects; full stop.

If you want to criticize our empirics — and God knows there is plenty for you to criticize — you can do so more accurately by questioning our functional form, the stable unit treatment value assumption across the plots owned by a given household, or the fact that we do not have a nationally representative sample.

Also, nowhere do I advocate that food be produced by a monopoly or an oligopoly, and I doubt that’ll actually ever happen (on that, read Ronald Coase’s 1937 “The Nature of the Firm).

I’m merely saying that (i) there is no empirical evidence that smallholders can feed the world, but (ii) there is plenty of evidence that shows that the inverse relationship between farm size and productivity is spurious or the results of market failures which, once they are addressed (as they inevitably will in the process of economic development) will mean smallholders are no longer more productive.

I realize you have an ax to grind with economists and that you dislike what I have to say. That, however, is not a license for you to post rubbish on my blog.

Empirical research is not objective as even the research question and the choice of data are already infused with subjective choices. What empirical research does is to give the ability to compare one model with another, not to say whether or not a model describes reality in a sufficient matter.

If that was indeed the case, there would be no hayek vs keynes or there would be no unexpected financial crises as our financial models are (or rather were) empirically sound.

What bothers me the most is that you take your subjective results and draw policy (non)implications that bigger is better because your model shows that this maximizes profits. Furthermore, you link this with food security which is much more an issue of accessibility than availability. The world is producing enough food to feed everyone. However, bringing the control over food to a couple of gigantic actors who only have profits as incentive does indeed lead to food insecurity, even for demographic groups within the USA.

Your microeconomic model is correct if you limit yourself to answer the question: how do we maximize profits?

However, it is a woefully inadequate to answer any question about among others land productivity, food accessibility and hence food security.

How, exactly, does this invalidate the empirical findings I discuss in this post?

If you are really following the microeconomics model, the farmer has a tougher choice than only maximizing his farm production function. In fact, he is faced with an even greater challenge, given his skills, talents, learning ability and given market prices for all goods and services in the market (which undoubtedly vary over time), how much of his labor and time should he invest in his farming activities at one time? After all, to maximize his life income (of which maximizing farm income is but a part), he has to make a continuous choice what goods or services to produce. So given all these constraints, he has to continuously monitor all his abilities and the market prices to see what mix of goods and services he needs to produce. Because what happens when the farmer who allocates the optimal amount of labor in his farming activity would actually make twice the income as a banker? You would have a violation of the rationality assumption underlying all microeconomics.

Now, you can argue that the farmer acts ‘as if’ he has made all these calculations in his head and is a farmer because that is what he is best at. Or I may argue that reality is much more influenced by social, technological, political and cultural phenomena than it is by solving for the derivative of a simplistic production function. Because even with such a production function and only looking at his farming activities, it is highly unlikely that the farmer has the ability or time to find the optimal allocation of his labor thanks to the white noise term. Farmers should solve their equation taking account of endogeneity, multicollinearity and other econometrical issues to really get a grip on their optimal amount of labor. And all that in a continuously changing world with technological, social and environmental shocks. I pity the farmer.

And we haven’t talked about externalities yet. As market prices do not take account of externalities, his optimal choice might actually not at all maximize his profits as his current production methods are eating away his natural capital.

In short, reality is so much more complex than what microeconomics is assuming. Of course there is a merit in simplifying the reality and drawing conclusion but in the case of microeconomics it is plainly oversimplified.

It is exactly the understanding of the shaky foundations of economics that led to me to not pursue a career in agricultural economics (while having a masters in economic research) and to pursue a career in agriculture instead. Don’t talk it, walk it.

In my worldview, the key to understanding the farmer’s decision is an interplay between cultural, social and technological factors on the economic condition that profits have to be sufficient (not maximized). Understanding those factors is much more the key to understanding and influencing behavior than it is by drawing conclusion from assumed production functions.

My two cents.

In that case, profit maximization implies that the farmer choose to allocate labor up to the point L*, where L* is such that pF'(L*) = w, or F'(L*) = w/p, or the point where the marginal product of labor pF'(L) is equal to its marginal cost w, since that's the point where profit is maximized.

This L* is not an arbitrary figure: it is driven by the interplay of (i) the price of output p, (ii) the price of labor w, and (iii) production technology and soil characteristics F'(L). And it is not purely driven by market prices, as you imply, because it is also driven by production technology and soil characteristics. My neoclassical reasoning holds for profit maximization. And of course profit maximization is not the same as land productivity, thought higher profits do translate into higher welfare.

Now, you will counter, not everyone is out to maximize profit. And you would be right for many cases in developing countries. In the presence of enough market failures, the farmer can no longer behave as a profit maximizer, because his production decision is no longer separable from his consumption decision (Singh et al., 1986). Such cases can lead to the inverse relationship between farm size and productivity, but do note that when that happens, the farmer almost surely attains a lower level of welfare relative to when there are no market failures.

Could you explain me the ‘optimal’ amount of labor for a farm? This is an arbitrary figure set by market prices which are far from ‘optimal’ due to the non-inclusion of both social as well as ecological externalities. Your neoclassical reasoning only holds if your only goal is to maximize monetary value which does not equate with land productivity, welfare and especially food security.

1. Controlling for the types of labor (adult, children, hired, reciprocal help) hardly makes a dent in the inverse relationship,
2. Soviet farmers, as I see it, started experiencing abysmal yields once Lenin’s New Economic Policy was ditched and Stalin de-kulakized, and
3. In my work, everyone grows the same thing (i.e., makalioka rice, or the pink Malagasy rice), and controlling for the technology, seeds, etc. used hardly makes a dent in the inverse relationship.

As I mentioned on Twitter, empirically, the inverse relationship is both a correlation (i.e., an unconditional relationship between yield, or kg/ha, and plot size, or ha) and an empirical relationship that holds ceteris paribus.

Now, it is perfectly possible that smallholders can feed the world — short of running a randomized controlled trial on that question, we’ll never know for sure. My point here is just that the inverse relationship is not evidence that that’s the case.