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An Ordered Tobit Model of Market Participation: Evidence from Kenya and Ethiopia

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  • Marc F. Bellemare
  • Christopher B. Barrett

Abstract

Do rural households in developing countries make market participation and volume decisions simultaneously or sequentially? This article develops a two-stage econometric method to test between these two competing hypotheses regarding household-level marketing behavior. The first stage models the household's choice of whether to be a net buyer, autarkic, or a net seller in the market. The second stage models the quantity bought (sold) for net buyers (sellers) based on observable household characteristics. Using household data from Kenyan and Ethiopian livestock markets, we find evidence in favor of sequential decision making, the welfare implications of which we discuss. Copyright 2006, Oxford University Press.

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  • Marc F. Bellemare & Christopher B. Barrett, 2006. "An Ordered Tobit Model of Market Participation: Evidence from Kenya and Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 88(2), pages 324-337.
    • Handle: RePEc:oup:ajagec:v:88:y:2006:i:2:p:324-337
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    File URL: http://hdl.handle.net/10.1111/j.1467-8276.2006.00861.x
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    1. Nigel Key & Elisabeth Sadoulet & Alain De Janvry, 2000. "Transactions Costs and Agricultural Household Supply Response," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(2), pages 245-259.
    2. Travis J. Lybbert & Christopher B. Barrett & Solomon Desta & D. Layne Coppock, 2004. "Stochastic wealth dynamics and risk management among a poor population," Economic Journal, Royal Economic Society, vol. 114(498), pages 750-777, October.
    3. Klein, Roger & Sherman, Robert, 1997. "Estimating new product demand from biased survey data," Journal of Econometrics, Elsevier, vol. 76(1-2), pages 53-76.
    4. de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-1417, November.
    5. Peter D. Little & Kevin Smith & Barbara A. Cellarius & D. Layne Coppock & Christopher Barrett, 2001. "Avoiding Disaster: Diversification and Risk Management among East African Herders," Development and Change, International Institute of Social Studies, vol. 32(3), pages 401-433, June.
    6. Puhani, Patrick A, 2000. "The Heckman Correction for Sample Selection and Its Critique," Journal of Economic Surveys, Wiley Blackwell, vol. 14(1), pages 53-68, February.
    7. Barrett, Christopher B. & Luseno, Winnie K., 2004. "Decomposing producer price risk: a policy analysis tool with an application to northern Kenyan livestock markets," Food Policy, Elsevier, vol. 29(4), pages 393-405, August.
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