Size of Farm and Productivity: A Problem of Indian Peasant Agriculture

One of the most interesting findings of the recent Farm Management Surveys in India has been that input per acre increases as the size of farms (measured in acres per holding) decreases. Associated with this increase in input there is an increase in output per acre, but a decrease in output per unit of input. This shows that although there is diminishing returns to input applied to an acre of land, the marginal returns continue to be positive over the range of observation. In this article, after analysing a little more closely the nature of the variations of input per acre (in Section I), an explanation is offered, based on simple assumptions about an agricultural system making use of family labour. Some implications of the analysis for policy are noted in the last section.