NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Economies of Density versus Natural Advantage: Crop Choice on the Back Forty

Thomas J. Holmes, Sanghoon Lee

NBER Working Paper No. 14704
Issued in February 2009, Revised in December 2011
NBER Program(s):Productivity, Innovation, and Entrepreneurship

We estimate the factors determining specialization of crop choice at the level of individual fields, distinguishing between the role of natural advantage (soil characteristics) and economies of density (scale economies achieved when farmers plant neighboring fields with the same crop). Using rich geographic data from North Dakota, including new data on crop choice collected by satellite, we estimate the analog of a social interactions econometric model for the planting decisions on neighboring fields. We find that planting decisions on a field are heavily dependent on the soil characteristics of the neighboring fields. Through this relationship, we back out the structural parameters of economies of density. Setting an Ellison-Glaeser dartboard level of specialization as a benchmark, we find that of the actual level of specialization achieved beyond this benchmark, approximately two-thirds can be attributed to natural advantage and one-third to density economies.

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Document Object Identifier (DOI): 10.3386/w14704

Published: Thomas J. Holmes & Sanghoon Lee, 2012. "Economies of Density versus Natural Advantage: Crop Choice on the Back Forty," The Review of Economics and Statistics, MIT Press, vol. 94(1), pages 1-19, 07. citation courtesy of

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