To trade or not to trade

non-separable farm household models in partial and general equilibrium.

Empirical evidence and microeconomic theory suggest that, in many
settings, farm household production and consumption decisions are “non-separable.” Non-separability may have important policy implications, including lack of response or threshold effects when incentives change. This paper extends the literature in two ways. First, we develop a non-separable farm household model with transaction costs and endogenous choice of market “regime” (surplus, self-sufficiency, or deficit) for production-consumption items (commodities and factors that are both demanded and supplied by the household). Second, we embed this household model in an economywidecomputable general equilibrium model which is formulated as a mixed-complementarity problem. Simulations with a model based on data for a stylized, low-income, Sub-Saharan African country show that the proposed formulation enhances our ability to analyze the impact of exogenous changes on African farmers.

Author: 
Lofgren, Hans
Robinson, Sherman
Published date: 
1999
Publisher: 
International Food Policy Research Institute (IFPRI)
Series number: 
37
PDF file: 
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tmdp37.pdf(283.6KB)