Does land fragmentation reduce efficiency: Micro evidence from India

The arguments favoring fewer land fragments on a farmer‐by‐farmer basis are many and includes reduced travel times, less boundary waste, feasibility of larger‐scale productive investment, and ease supervision of labor to name a few. Thus, it is not surprising to find some of the earlier empirical research a priori assuming land fragmentation as an indicator of productive inefficiency (Bardhan 1973). On the other hand, opponents of land consolidation programs note the benefits of fragmented land holdings to reduce risk and encouraging more diversified production. In India, an additional problem associated with land consolidation programs from a distributional aspect is that such programs tend to benefit those with larger land holdings more than those with smaller holdings since the implicit costs of land fragmentation are higher for larger farms (Mearns 1999). It has been suggested that fragmented land holdings allow producers to be more adaptive to certain circumstances but may more non‐adaptive when factor prices and technology changes (McClosky 1975). In the end, the issue of whether or not land fragmentation negatively affects agricultural productivity is an empirical one. To quantify the degree of land fragmentation a variety of different methods and indicators have been proposed and includes include number of plots, distances to plots, and an index capturing dissimilarities across farmed plots of land (i.e. Simpsons Index). From the perspective of an individual farmer or household, we can think of fragmentation as touching on spatial dispersion, number of fragments, and dissimilarity in fragments or a combination of these. In this paper we consider each of these dimensions in more detail and argue that much of the related research considers only one or two of these dimensions or does not adequately distinguish among them making effective targeting of policy difficult. For example, Simpson’s index, an oft used measure to quantify the degree of land fragmentation, combines variation in areas among fragments with the number of fragments at the household level making it impossible to distinguish between these two dimensions. A major contribution of this study is to consider these three conceptually distinct dimensions of land fragmentation separately and to examine how they impact agricultural productivity. In particular we use the Rural Economic Development Survey (REDS) and estimate a Cobb‐Douglas production function to determine the effect fragmentation has on productivity. By breaking down fragmentation into these three dimensions we are better able to disentangle and asses the importance of the different aspects commonly associated to fragmentation. Our results indicate the number of fragments dimension has a significantly negative impact on productivity. Furthermore, the two other dimensions spatial disconnect and variability in area, do not significantly impact productivity having controlled for the number of fragments. The next section recounts the related literature and is followed by a discussion of different fragmentation measures including a decomposition of Simpson’s index. The next section presents a framework to test the impact of different fragmentation measures on fragmentation and is followed by a description of the REDS data used for estimation. We then present and discuss the results of our analysis and round out the paper with a discussion of the implications of our findings.