Economies of Size in Multiple Cropping in Northern Thailand: A Random Coefficient Model Approach
Wiboonpongse, Aree
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https://hdl.handle.net/2142/69857
Description
Title
Economies of Size in Multiple Cropping in Northern Thailand: A Random Coefficient Model Approach
Author(s)
Wiboonpongse, Aree
Issue Date
1983
Department of Study
Agricultural Economics
Discipline
Agricultural Economics
Degree Granting Institution
University of Illinois at Urbana-Champaign
Degree Name
Ph.D.
Degree Level
Dissertation
Keyword(s)
Economics, Agricultural
Abstract
To raise production and make efficient use of farm resources, size efficiency and factors affecting size efficiency are examined. The Chiang Mai Valley, the most intensive agricultural area in Northern Thailand, is chosen for this study. Since the Valley is characterized by multi-product farming, there is a need for an appropriate analytical approach. Past studies in size economies have usually dealt with multi-product farms as if they were single product farms. An alternative approach to estimate the long run average cost for each product for multi-product farms is considered and applied to investigate whether size economies exist in the Chiang Mai Valley.
A variant of the Belsley random coefficient model is used in this study. Total cost is expressed as the summation of the product of each output times its average total cost. Average cost is modelled as a function of explanatory variables plus a stochastic error term. The model is heteroscedastic in nature, so parameters are estimated using estimated generalized least squares (EGLS) with Hildreth and Houck's estimation technique of the unknown variance-covariance matrix. EGLS provides reasonable estimates of the cost curves of rice, but does not perform as well for soybeans. This likely happens because soybean production is usually affected by high variation in water availability and disease factors.
The efficient size of rice cultivation is approximately at the sample average (8 rai or 4.8 hectares). The unit cost of rice decreases at a decreasing rate within the rage of 2 to 30 rai. For soybeans, the unit cost also decreases, at least up to the land holding size of 20 rai. Therefore, policies should be considered to limit decreases in the land holding sizes, which mainly result from the inheritance custom, to take advantage of size efficiency.
An analysis of size efficiency, using lower rent rates, is undertaken. The cost curve of rice is flatter when all farmers pay rent by the same proportions of the rice and soybean crops than when the cost curve is figured using actual rent data. However, the cost curve for soybeans falls sharply with the lower rent rate. This finding implies that the farmers with smaller land holdings pay higher than average rent, while the farmers with larger holdings pay lower rents. The rent paid for soybeans is compensated for partly by rent paid for the rice crop. The present rent is not an overcharge for the rice-soybean cropping system when unit costs are compared to average unit prices.
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