An economic analysis of resource and income uses among farm households of Ethiopia: application of household production model

One of the chief economic features of family based farms is the practice of joint-production-consumption activities. This is particularly evident in our study of selected villages in Ethiopia. Here, a great proportion of the working age farm population participates in crop and livestock production activities. Typically, a family furnishes the bulk of its resources--land and labor--to the production of food crops. The choice of crops is often dictated by food consumption habits and the structure of resource endowments. The income generated from these activities is used largely to finance the family's ordered consumption goals.;The realization of such joint economic decisions is systematized in a more formal model. The farm household production model allows the joint interaction of these joint activities in a utility maximization framework. The no-wage labor market version of the model demonstrates that these interactions through the income equation become more joint and interdependent as markets become regulated or absent. This is primarily due to the existence of conditional profit function as an endogenous component in the income equation.;A separate analysis of the production model examines the factors that are associated with the variations in the level of income. An LP model is simulated under three alternative production goals and resource market situations. Situation one assumes the household pursues multiple goals under regulated resource markets. Situation two is similar to Situation one but the household is limited to one production goal. Situation three allows the household to continue to pursue a single goal under no resource market restrictions. The results suggest that as the farm unit practices fewer goals in less constrained resource markets, it tends to concentrate on the production of high valued crops. Consequently, it improves its level of income and efficiency of resource uses.;The results obtained from an econometric estimation of the linear expenditure demand system under fixed income assumption suggest that consumption outlays are responsive to changes in the level of income, family size and specific farm locations. But, as the income equation is entered explicit and endogenized, consumption becomes responsive to changes in production parameters. The latter approach demonstrates the significance of the existence of joint-production-consumption practices among the households.