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To Trade or Not to Trade? Non-Separable Farm Household Models in Partial and General Equilibrium

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  • Lofgren, Hans
  • Robinson, Sherman

Abstract

Empirical evidence and microeconomic theory suggest that, in many settings, farm household production and consumption decisions are "non-separable." Non-separability may have important policy implications, including lack of response or threshold effects when incentives change. This paper extends the literature in two ways. First, we develop a non-separable farm household model with transaction costs and endogenous choice of market "regime" (surplus, self-sufficiency, or deficit) for production-consumption items (commodities and factors that are both demanded and supplied by the household). Second, we embed this household model in an economy-wide computable general equilibrium model which is formulated as a mixed-complementarity problem. Simulations with a model based on data for a stylized, low-income, Sub-Saharan African country show that the proposed formulation enhances our ability to analyze the impact of exogenous changes on African farmers.

Suggested Citation

  • Lofgren, Hans & Robinson, Sherman, 1999. "To Trade or Not to Trade? Non-Separable Farm Household Models in Partial and General Equilibrium," TMD Discussion Papers 97557, CGIAR, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:ags:iffp23:97557
    DOI: 10.22004/ag.econ.97557
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    References listed on IDEAS

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    1. Rutherford, Thomas F., 1995. "Extension of GAMS for complementarity problems arising in applied economic analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 19(8), pages 1299-1324, November.
    2. Lofgren, Hans & Robinson, Sherman, 1997. "The mixed-complementary approach to specifying agricultural supply in computable general equilibrium models," TMD discussion papers 20, International Food Policy Research Institute (IFPRI).
    3. Sadoulet, Elisabeth & de Janvry, Alain & Benjamin, Catherine, 1996. "Household Behavior With Imperfect Labor Markets," CUDARE Working Papers 25044, University of California, Berkeley, Department of Agricultural and Resource Economics.
    4. Lofgren, Hans & Robinson, Sherman, 1997. "The mixed-complementary approach to specifying agricultural supply in computable general equilibrium models," TMD Discussion Papers 97688, CGIAR, International Food Policy Research Institute (IFPRI).
    5. Hanan G. Jacoby, 1993. "Shadow Wages and Peasant Family Labour Supply: An Econometric Application to the Peruvian Sierra," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(4), pages 903-921.
    6. Lopez, Ramon E., 1984. "Estimating labor supply and production decisions of self-employed farm producers," European Economic Review, Elsevier, vol. 24(1), pages 61-82.
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