Production Contracts and Productivity in the U.S. Hog Sector

Abstract This article measures the impact of contracting on partial and total factor productivity and the production technology of U.S. hog operations. A sample selection model accounts for the fact that unobservable variables may be correlated with both the operators' decision to contract and farm productivity. Results indicate that the use of production contracts is associated with a substantial increase in factor productivity, and represents a technological improvement over independent production. Results also identify determinants of farmers' decisions to contract and other factors influencing farm productivity.