Education in Production: Measuring Labor Quality and Management

Production function studies have used the education of the head of the household or the average education of farm workers to assess the contribution of schooling to farm efficiency. In this paper I critically examine the information content of these measures by developing a team production model which suggests separate education measures to approximate labor quality and managerial skills. Empirical analyses based on Chinese farm household data show that the new measures are statistically superior to the existing alternatives. There is evidence of centralized decision making on the farms where the highest schooling contributes the most to production efficiency.