Files
Abstract
Estimating how the use of production contracts affects farm productivity is difficult when
unobservable factors are correlated with both the decision to contract and productivity. To account
for potential selection bias, this study uses the local availability of production contracts
as an instrument for whether a farm uses a contract in order to estimate the impact of contract
use on total factor productivity. Results indicate that use of a production contract is associated
with a large increase in productivity for feeder-to-finish hog farms in the United States. The
instrumental variable method makes it credible to assert that the observed association is a
causal relationship rather than simply a correlation.