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Measuring the effect of transaction costs for investment in irrigation pumps: Application of the unobserved stochastic threshold model to the case of Nigeria

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  • Takeshima, Hiroyuki
  • Adeoti, Adetola I.
  • Salau, Sheu

Abstract

This article empirically assesses the effect of unobserved transaction costs for Nigerian farmers when investing in irrigation pumps. The unobserved stochastic threshold (UST) model popularly used in labor economics literature is applied, and is compared with two models, the Tobit and the Heckman sample selection model, which are slightly more restrictive versions of the UST model. The results indicate that the unobserved transaction costs are higher for female farmers, landless farmers, those who have a comparatively high dependency ratio, and those who live far from town. The results suggest that the unobserved transaction costs can be as important as the factors determining the profitability of irrigation pumps, which emphasizes the importance of reducing transaction costs and providing the environment for higher returns from investment in irrigation. From a methodological perspective, the UST model is found to be more accurate and informative than the Tobit and Heckman models.

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  • Takeshima, Hiroyuki & Adeoti, Adetola I. & Salau, Sheu, 2011. "Measuring the effect of transaction costs for investment in irrigation pumps: Application of the unobserved stochastic threshold model to the case of Nigeria," African Journal of Agricultural and Resource Economics, African Association of Agricultural Economists, vol. 6(2), pages 1-26, September.
    • Handle: RePEc:ags:afjare:156971
    DOI: 10.22004/ag.econ.156971
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    1. Okello, Julius J. & Kwikiriza, Norman & Kakuhenire, Rogers & Parker, Monica & Schulte-Geldermann, Elmar & Pambo, Kennedy, 2015. "Micro and meso-level issues affecting potato production and marketing in the tropical highlands of Sub-Saharan Africa: The known and the unknowns," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205464, Agricultural and Applied Economics Association.
    2. Takeshima, Hiroyuki, 2015. "Identifying the effects of market imperfections for a scale biased agricultural technology: Tractors in Nigeria," 2015 Conference, August 9-14, 2015, Milan, Italy 211937, International Association of Agricultural Economists.
    3. Takeshima, Hiroyuki & Adhikari, Rajendra Prasad & Kumar, Anjani, 2016. "Is access to tractor service a binding constraint for Nepali Terai farmers? :," IFPRI discussion papers 1508, International Food Policy Research Institute (IFPRI).
    4. Takeshima, Hiroyuki & Adeoti, Adetola I. & Okoli, Silas & Salau, Sheu & Rhoe, Valerie, 2010. "Demand characteristics for small-scale private irrigation technologies: Knowledge gaps in Nigeria," NSSP working papers 18, International Food Policy Research Institute (IFPRI).
    5. Srinivas Chokkakula & Mark Giordano, 2013. "Do policy and institutional factors explain the low levels of smallholder groundwater use in Sub-Saharan Africa?," Water International, Taylor & Francis Journals, vol. 38(6), pages 790-808, October.
    6. Barrett,Christopher B. & Sheahan,Megan Britney & Barrett,Christopher B. & Sheahan,Megan Britney, 2014. "Understanding the agricultural input landscape in Sub-Saharan Africa : recent plot, household, and community-level evidence," Policy Research Working Paper Series 7014, The World Bank.
    7. Takeshima, Hiroyuki & Edeh, Hyacinth, 2013. "Typology of farm households and irrigation systems: Some evidence from Nigeria," IFPRI discussion papers 1267, International Food Policy Research Institute (IFPRI).
    8. Giordano, Meredith & de Fraiture, Charlotte, 2014. "Small private irrigation: Enhancing benefits and managing trade-offs," Agricultural Water Management, Elsevier, vol. 131(C), pages 175-182.
    9. de Fraiture, Charlotte & Giordano, Meredith, 2014. "Small private irrigation: A thriving but overlooked sector," Agricultural Water Management, Elsevier, vol. 131(C), pages 167-174.

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