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Effect of agricultural policy on succession decisions of farm households

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Abstract

Policymakers, economists, and researchers have recently been interested in assessing the impact of farm program payments on the growth and survival of farm businesses. Planning for succession is an integral part of managing a farm business. This study uses farm-level data to investigate the impact of government farm policy and farm growth on both succession decisions and the likelihood of intra-family transfers of the farm business. Results indicate that succession decisions are significantly influenced by government farm policy, farm wealth, age, and educational attainment of current farm operators. Results show that off-farm work by operators and spouses and regional location are positively correlated with non-family farm succession decisions. On the other hand, farm ownership, educational attainment, and marital status of the operator increase the likelihood of family-based succession decisions. However, in the presence of retirement income from other sources such as pension, parents are less likely to have a family successor.

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Notes

  1. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA).

  2. However, wills should not be used as an alternative to succession plans. They should be used to compliment the succession plan.

  3. See Becker 1974; Wilhelm 1996 on literature related to intergenerational transfers and altruism motive.

  4. For a comprehensive review of the literature on intrahousehold transfers, see Bernheim et al. (1985).

  5. These weights could be thought of as Pareto weights derived from the bargaining game between the farm operator and the successor.

  6. The distribution of government payments has the added problem of preponderance of zero as 53% (61%) of farms whose operators are aged 45 years or older and with a succession plan (without a succession plan) did not receive any payments in 2001. Study by Fletcher et al. (2005) among others; have addressed the problems of skewed data with many zeros in logistic regressions. In terms of consequences and means to mitigate problems of endogenous variables in regression analysis, these issues have been addressed by many studies including Angrist and Krueger (1991).

    To mitigate the problem of endogeneity farm wealth is measured in this paper based on its dollar value at the beginning of 2001, or implicitly at end of the previous year (see footnote b, Table 1) thus deeming it to be an exogenous variable in the farm succession model.

  7. Key and Roberts, using Census of Agriculture data find that government payments are positively correlated with the likelihood of farm survival for both large and small farms.

  8. The study by Glauben, Tietje, and Weiss, which used standard gross margins as a proxy for farm size, found a positive and significant effect by farm size on succession decision.

  9. The result of the Hausman and McFadden (1984) test for the validity of the IIA assumption pointed towards its acceptance.

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Acknowledgement

The authors would like to thank two anonymous referees and the editor for helpful discussion and comments. This project was supported by the USDA Cooperative State Research Education & Extension Service, Hatch project # 0212495 and Louisiana State University Experiment Station project # LAB 93872.

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Authors and Affiliations

  1. Department of Agricultural Economics and Agribusiness, Louisiana State University, 226 Ag. Admin. Bldg., Baton Rouge, LA, 70803, USA

    Ashok K. Mishra

  2. Resource Economics Division, Economic Research Service, U.S. Department of Agriculture, Washington, DC, 20036-5831, USA

    Hisham S. El-Osta

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  1. Ashok K. Mishra
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  2. Hisham S. El-Osta
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Correspondence to Ashok K. Mishra.

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Mishra, A.K., El-Osta, H.S. Effect of agricultural policy on succession decisions of farm households. Rev Econ Household 6, 285–307 (2008). https://doi.org/10.1007/s11150-008-9032-7

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  • DOI: https://doi.org/10.1007/s11150-008-9032-7

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