Subsistence Agriculture in Transition Economies: Its Roles and Determinants

This paper discusses some beneficial effects of subsistence agriculture with emphasis on transition countries. Micro‐economic models of subsistence agriculture are reviewed and a two‐stage decision model, combining risk aversion and transaction costs explanations for subsistence is developed. The role of subsistence agriculture is addressed in a static comparison to a purely commercial agriculture. We argue that subsistence can play a stabilising role and have beneficial impacts on the agricultural sector when the resources it employs are unwanted by the commercial sector. The exact conditions under which the latter is true are analysed in a static general equilibrium framework. Employing the concept of the subsistence level of consumption, the paper demonstrates that these static effects can be valid in a dynamic perspective, provided additional conditions are met. Policy recommendations with regard to agricultural commercialisation are presented. These explicitly rely upon assumptions about the orientation of subsistence farmers. The lack of current research into this important behavioural feature of farmers in transition countries requires urgent action. There is urgent need for more research into the motivation, objectives and behaviour of subsistence farmers in rural economies of countries in transition.