Over at Freakonomics.com, James McWilliams graciously referred to the (in his words "superb") book Bailey Norwood and I wrote last year, Compassion by the Pound.
The question he raises in his post is whether it is profitable for farmers to adopt higher animal welfare standards. There is a common belief in the agricultural community that happy animals are profitable animals. And that is partly true. But as we argued in our book, and in more detail in this recent journal article entitled Animal Welfare Economics, farmers aren't necessarily interested in maximizing individual animal profitability but the profitability of a group of animals housed on a fix amount of land. When the goal is to maximize the total profit calculated over all animals, we show that a producer will sacrifice some individual animal welfare to achieve higher group output. The intuition is straightforward. A larger group of slightly sadder animals can produce more output than can a smaller group of slightly happier animals.