Specific Experience, Household Structure, and Intergenerational Transfers: Farm Family Land and Labor Arrangements in Developing Countries

Abstract

An overlapping generations model incorporating returns to specific experience is used to demonstrate how three salient phenomena in land-scarce developing countries—the predominance of intergenerational family extension, cost advantages of family relative to hired labor, and the scarcity of land sales—may be manifestations of an optimal implicit contract between generations that maximizes the gains from farm-specific, experientially obtained knowledge. A method for estimating the contribution to agricultural profits of the farm experience embodies in elderly kin based on a three-year panel of household data from India is proposed and implemented. Implications of the theory for market transactions in land and for family extension are also tested using individual farm data and time-series information on rainfall. Why is the aged husbandman more skillful in his calling than the younger beginner, but because there is a certain uniformity in the operation of the sun, rain, and earth, towards the production of vegetables; and experience teaches the old practitioner the rules, by which this operation is governed and directed? David Hume [1758, p. 106]