The Role of Small Farms inStructural Change

This paper explains regionally differentiated patterns of structural change based on a theoreticalframework dealing with strategic interaction of farms on the land market. The main research questionfocuses on the causes of regionally persistent structures. An empirical Markov chain model is definedfor the West German agricultural sector. Thereby it is possible to explain the probabilities of farmgrowth, decline or exit in terms of the current and former regional farm size structure. Further, theimpact of variables describing the regional farm structure, thereby indicating market power of thelarge, the potential of high competition for land within a region and possibly high rents of the statusquo in combination with sunk costs, is quantified. The results confirm the relevance of strategicinteraction as a crucial determinant of regionally different structural change and persistent regionaldifferences in the farm size structure over time....