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Article
O-Ring Production on U.S. Hog Farms: Joint Choices of Farm Size, Technology, and Compensation
Economics Working Papers (2002–2016)
  • Li Yu, Central University of Finance and Economics
  • Peter F. Orazem, Iowa State University
Document Type
Working Paper
Publication Date
1-1-2011
Working Paper Number
WP #08029, January 2011
Abstract

We hypothesize that hog production can be characterized by complementarities between new technologies, worker skills and farms size. Such production processes are consistent with Kremer’s (1993) O-ring production theory in which a single mistake in any one of several complementary tasks in a firm’s production process can lead to catastrophic failure of the product’s value. In hog production, mistakes that introduce disease or pathogens into the production facility can cause a total loss of the herd. Consistent with predictions derived from the O-ring theory, we provide evidence that the most skilled workers concentrate in the largest and most technologically advanced farms and are paid more than comparable workers on smaller farms. These findings suggest that worker skills, new technologies and farm size are complements in production. The complementarities create returns to scale to large hog confinements, consistent with the dramatic increase in market share of very large farms over the past 20 years.

File Format
application/pdf
Length
36 pages
Citation Information
Li Yu and Peter F. Orazem. "O-Ring Production on U.S. Hog Farms: Joint Choices of Farm Size, Technology, and Compensation" (2011)
Available at: http://works.bepress.com/peter-orazem/104/