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Bayes' Estimates Of The Double Hurdle Model In The Presence Of Fixed Costs

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  • Holloway, Garth J.
  • Barrett, Christopher B.
  • Ehui, Simeon K.

Abstract

We present a model of market adoption (participation) where the presence of non-negligible fixed costs leads to non-zero censoring of the traditional double-hurdle regression. Fixed costs arise due to household resources that must be devoted a priori to the decision to participate in the market. These costs-usually a cost of time-motivate two-step decision-making and focus attentions on the minimum-efficient scale of operations (the minimum amount of milk sales) at which market entry becomes viable. This focus, in turn, motivates a non-zero-censored Tobit regression estimated through routine application of Markov chain Monte Carlo Methods.

Suggested Citation

  • Holloway, Garth J. & Barrett, Christopher B. & Ehui, Simeon K., 2002. "Bayes' Estimates Of The Double Hurdle Model In The Presence Of Fixed Costs," Working Papers 14741, Cornell University, Department of Applied Economics and Management.
  • Handle: RePEc:ags:cudawp:14741
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    References listed on IDEAS

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    1. James J. Heckman, 1976. "The Common Structure of Statistical Models of Truncation, Sample Selection and Limited Dependent Variables and a Simple Estimator for Such Models," NBER Chapters,in: Annals of Economic and Social Measurement, Volume 5, number 4, pages 475-492 National Bureau of Economic Research, Inc.
    2. 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.
    3. Jeffrey H. Dorfman, 1996. "Modeling Multiple Adoption Decisions in a Joint Framework," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 78(3), pages 547-557.
    4. Cogan, John F, 1981. "Fixed Costs and Labor Supply," Econometrica, Econometric Society, vol. 49(4), pages 945-963, June.
    5. Lisa A. Cameron, 1999. "The Importance of Learning in the Adoption of High-Yielding Variety Seeds," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 81(1), pages 83-94.
    6. Geweke, John & Keane, Michael P & Runkle, David, 1994. "Alternative Computational Approaches to Inference in the Multinomial Probit Model," The Review of Economics and Statistics, MIT Press, vol. 76(4), pages 609-632, November.
    7. 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.
    8. McCulloch, Robert E. & Polson, Nicholas G. & Rossi, Peter E., 2000. "A Bayesian analysis of the multinomial probit model with fully identified parameters," Journal of Econometrics, Elsevier, vol. 99(1), pages 173-193, November.
    9. Nelson, Forrest D., 1977. "Censored regression models with unobserved, stochastic censoring thresholds," Journal of Econometrics, Elsevier, vol. 6(3), pages 309-327, November.
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    Citations

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    Cited by:

    1. Balsevich, Fernando & Schuetz, Paul & Perez, Edwin, 2006. "Cattle Producer' Participation in Market Channels in Central America: Supermarkets, Processors, and Auctions," Staff Papers 11482, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    2. Asafu-Adjaye, John, 2008. "Factors Affecting the Adoption of Soil Conservation Measures: A Case Study of Fijian Cane Farmers," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 33(01), April.
    3. Barrett, Christopher B., 2008. "Smallholder market participation: Concepts and evidence from eastern and southern Africa," Food Policy, Elsevier, vol. 33(4), pages 299-317, August.
    4. Escobal D'Angelo, Javier & Torero, Maximo, 2006. "Access to Dynamic Markets for Small Commercial Farmers: The Case of Potato Production in the Peruvian Andes," 2006 Annual Meeting, August 12-18, 2006, Queensland, Australia 25667, International Association of Agricultural Economists.

    More about this item

    Keywords

    market participation; fixed costs; double-hurdle model; censored regression.; Financial Economics; O1; O11; C34; O13; Q16; D1;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • C34 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Truncated and Censored Models; Switching Regression Models
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q16 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - R&D; Agricultural Technology; Biofuels; Agricultural Extension Services
    • D1 - Microeconomics - - Household Behavior

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