Rationing and peasant household behaviour: a comparative static analysis

In many developing countries, a large proportion of agricultural production is undertaken by small-scale peasant households. Such peasant households are typically complex economic units, given that they are engaged, inter alia, in the economic activities of production, consumption and factor supply. Notwithstanding such complexity, an accurate characterisation of their behaviour is important from the point of view of development policy. This is especially the case with regard to their responsiveness to price and other market signals'. This issue is of particular importance for stabilisation and structural adjustment policies, many of which place emphasis on raising the prices of key cash crops in the hope of generating a strong supply response. Other components of such programmes, such as exchange rate devaluation or the removal of subsidies, may affect, intentionally or incidentally, prices of other agricultural inputs and outputs, and consumer goods. The production and welfare consequences of such changes is an issue of considerable policy importance; these consequences will depend on how, and to what extent, peasant households respond to changing prices. Empirical evidence suggests that supply response in agriculture is weak, at least at the aggregate level (Binswanger et al, 1987) and perhaps also at the level of individual crops (Bond, 1983). Historically, evidence of this type was used to counteract concern about the effects of the anti-agricultural terms of trade bias resulting from development strategies based on the extraction of agricultural surplus. In the present context, such evidence suggests that attempts to reverse this terms of trade bias, which are often implicit or explicit elements of structural adjustment and stabilisation policies, may only have limited effects on increasing agricultural production and reducing rural poverty. In the light of this and other issues, the question of the behaviour of peasant households has attracted significant attention in the economic literature, from both theoretical and empirical points of view. In this regard, the models as¬sociated with the names of Barnum and Squire (1979a) and Singh, Squire and Strauss (1986a, 1986b) represent seminal contributions. These models capture the various household decisions in a framework incorporating the conventional mi-croeconomic theory of consumer and producer behaviour. Implicit in such models is the assumption that peasants are potentially responsive to price. However, a number of studies have recognised that the markets in which peasants operate do not necessarily function perfectly; peasants may face rationing in some markets (Bevan, Bigsten. Collier and Gunning, 1987; Berthelemy and Morrisson, 1987), whereas other markets may be absent (Strauss, 1986; de Janvry, Fafchamps and Sadoulet, 1991). This absence or imperfection of markets will not only constrain household choice in the markets directly affected, but also in other markets in which they transact. Such market failures might be expected to reduce the re¬sponsiveness of peasant households to price and other signals. They might also be expected to have adverse effects on welfare and agricultural output. Based on the assumption that peasant households are potentially responsive to market signals, but are frequently constrained in their response by market failures, this paper seeks to set out a general model of peasant behaviour in an environment of rationed or missing markets, and to trace out the implications for production and consumption behaviour. Starting from the major contribution of Strauss (1986), to whose formulation this paper owes much, we seek to set out a general model which encompasses existing models of peasant households in the literature, but which generalises and develops them in some directions. The paper is organised as follows. Building on a behavioural model of a peas¬ant household in the absence of rationing (set out in section 2), a general model of a rationed peasant household is set out in section 3, based on a generalisation of Strauss's (1986) model. The comparative static properties of the model are then examined in two sections, with section 4 deriving general expressions applying to changes in any exogenous variable and section 5 discussing specific instances, in particular the effects of changes in prices. Section 6 concludes.