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Barriers to exit encountered by small farms in light of the theory of new institutional economics

Author

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  • Lukasz SATOLA

    (Institute of Enterprises Economics and Management, University of Agriculture in Krakow, Krakow, Poland)

  • Tomasz WOJEWODZIC

    (Institute of Economic and Social Sciences, University of Agriculture in Krakow, Krakow, Poland)

  • Wojciech SROKA

    (Institute of Economic and Social Sciences, University of Agriculture in Krakow, Krakow, Poland)

Abstract

For at least 25 years, processes involving structural changes have been growing more and more intense in the countries of Central and Eastern Europe, with these processes including a decline in the number of small farms. The main aim of this paper is to present the mechanisms involved in, as well as barriers to and costs preventing the exit of farms from agriculture, including those that make it difficult to transfer production resources which are being released to other companies. This research takes the form of an overview and is based on the output of new institutional economics, and on transaction cost and rent-seeking theories in particular. The most frequent difficulties encountered in the process of exit from farming include low profitability of production and the shortage of capital among potential buyers, while the lack of sellers' financial resources and the necessity of incurring expenses related to preparing and finalising the sale of resources held by them (the actual transaction costs related to closing down farms) are frequently overlooked. The most important barriers preventing the complete liquidation of farms are the inherent transaction costs categorised as expenses, as well as the emotional costs and costs of alternatives, which are difficult to evaluate and estimate. The following notions are particularly helpful in explaining barriers to exit from farming: the concept of transaction costs and rent-seeking theory, which are both a part of the stream of thought of new institutional economics.

Suggested Citation

  • Lukasz SATOLA & Tomasz WOJEWODZIC & Wojciech SROKA, 2018. "Barriers to exit encountered by small farms in light of the theory of new institutional economics," Agricultural Economics, Czech Academy of Agricultural Sciences, vol. 64(6), pages 277-290.
  • Handle: RePEc:caa:jnlage:v:64:y:2018:i:6:id:233-2016-agricecon
    DOI: 10.17221/233/2016-AGRICECON
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