Can Unobserved Heterogeneity in Farmer Ability Explain the Inverse Relationship between Farm Size and Productivity?∗

The well-known inverse relationship between farm size and productivity is usually explained in terms of diminishing returns with respect to land and other inputs coupled with various types of market frictions that prevent the efficient allocation of land across farms. We show that even in the absence of diminishing returns one can provide an alternative explanation for this phenomenon using endogenous occupational choice and heterogeneity with respect to farming skills.  2003 Elsevier B.V. All rights reserved.