Synergies, scope economies and scale diseconomies on farms in Norway

Abstract

We test for the presence of synergies and associated economic gains on farms in Norway from exploiting a diverse set of income-earning possibilities. The synergies and economic gains from product diversification are examined between livestock output, crop output, off-farm income, coupled subsidies and environmental payments. Synergies are measured by the second cross partial derivatives of outputs, and economic gains from diversification are measured by scope economies, with the former a necessary but insufficient condition for the latter. While synergies are evident, they do not result in economic gains from diversification of on-farm and off-farm activities. Evidence is also presented of significant diseconomies of small scale in farming operations. In contrast to results obtained for farms in the US Corn Belt, however, they are not assuaged when off-farm work is taken into account.