What are the gains from mechanization? We run a randomized control trial that subsidizes access to equipment rental markets to study how the adoption of mechanization shifts farming households’ labor supply, farm productivity and labor demand. The intervention induces greater mechanization in the upstream production stage, with labor savings concentrated in downstream, non-mechanized stages. Savings on family labor are concentrated among members engaged in worker supervision and accompanied by an increase in households’ non-agricultural income. To assess the welfare implications of the intervention, we build a model of heterogeneous farmers that make joint labor supply and production decisions because incentives to mechanize depend on the opportunity cost of supervising hired labor. The calibrated model predicts a consumptionequivalent welfare improvement of 7.6%, with two-thirds of those gains accruing to leisure. Welfare gains are heterogeneous despite common treatment effects. Through counterfactuals, we show that endogenous productivity gains account for relatively more of the welfare gains for farmers with low-supervision ability.
