Agricultural Economics Department


Date of this Version

October 2003


Published in Cornhusker Economics, 10/15/2003. Produced by the Cooperative Extension, Institute of Agriculture and Natural Resources, Department of Agricultural Economics, University of Nebraska–Lincoln.


In 2003 Key and Mcbride1 found that pork operations using production contracts improved productivity. They asserted that improvement in the quality of managerial inputs such as improving information transfers and facilitating access to credit may account for such improvements. Alvarez and Arias2 suggested that fixed managerial ability causes agricultural operations to suffer dis-economies of size. Managerial ability, as described by Kaldor3, consists of supervision and coordination. Supervision is crucial for numerous individuals to work together to complete the responsibilities for common production results. The coordination aspect is that function of deciding which arrangements or contracts should be entered into. While one can hire additional supervisors, it is difficult to hire more people who decide what arrangements or contracts the operation will enter into. Having one decision maker becomes a limiting factor for the performance of the operation. The solution to this fixed unit is the productive combination of management that assigns responsibility for parts of the decision process. The need is reduced for one decision maker to have all the available knowledge that can affect the business.