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Economies of density versus natural advantage: crop choice on the back forty

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  • Thomas J. Holmes
  • Sanghoon Lee

Abstract

We estimate the factors determining specialization of crop choice at the level of individual fields, distinguishing between the role of natural advantage (soil characteristics) and economies of density (scale economies achieved when farmers plant neighboring fields with the same crop). Using rich geographic data from North Dakota, including new data on crop choice collected by satellite, we estimate the analog of a social interactions econometric model for the planting decisions on neighboring fields. We find that planting decisions on a field are heavily dependent on the soil characteristics of the neighboring fields. Through this relationship, we back out the structural parameters of economies of density. Setting an Ellison-Glaeser dartboard level of specialization as a benchmark, we find that of the actual level of specialization achieved beyond this benchmark, approximately two-thirds can be attributed to natural advantage and one-third to density economies.

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  • Thomas J. Holmes & Sanghoon Lee, 2009. "Economies of density versus natural advantage: crop choice on the back forty," Working Papers 668, Federal Reserve Bank of Minneapolis.
    • Handle: RePEc:fip:fedmwp:668
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    References listed on IDEAS

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    2. Bajari, Patrick & Hong, Han & Krainer, John & Nekipelov, Denis, 2010. "Estimating Static Models of Strategic Interactions," Journal of Business & Economic Statistics, American Statistical Association, vol. 28(4), pages 469-482.
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    More about this item

    JEL classification:

    • Q10 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - General
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
    • R14 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Land Use Patterns

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