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Defining a theoretical model of farm households’ labour allocation decisions

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  • Donnellan, Trevor
  • Hennessy, Thia

Abstract

This paper presents a theoretical model for the analysis of decisions regarding farm household labour allocation. The agricultural household model is selected as the most appropriate theoretical framework; a model based on the assumption that households behave to maximise utility, which is a function of consumption and leisure, and is subject to time and budget constraints. The model can be used to describe the role of government subsidies in farm household labour allocation decisions; in particular the impact of decoupled subsidies on labour allocation can be examined. Decoupled subsidies are a labour-free payment and as such represent an increase in labour-free income or wealth. An increase in wealth allows farm households to work less while maintaining consumption. On the other hand, decoupled subsidies represent a decline in the return to farm labour and may lead to a substitution effect, i.e. farmers may choose to substitute non-farm work for farm work. The theoretical framework proposed in this paper allows us to examine these two conflicting effects.

Suggested Citation

  • Donnellan, Trevor & Hennessy, Thia, 2012. "Defining a theoretical model of farm households’ labour allocation decisions," Factor Markets Working Papers 140, Centre for European Policy Studies.
  • Handle: RePEc:eps:fmwppr:140
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    File URL: http://www.factormarkets.eu/system/files/FM%20No%2031%20Household%20Labour%20Allocation%20Decisions.pdf
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    References listed on IDEAS

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    1. Weersink, Alfons & Nicholson, Charles & Weerhewa, Jeeveka, 1998. "Multiple job holdings among dairy farm families in New York and Ontario," Agricultural Economics, Blackwell, vol. 18(2), pages 127-143, March.
    2. Huffman, Wallace E & Lange, Mark D, 1989. "Off-Farm Work Decisions of Husbands and Wives: Joint Decision Making," The Review of Economics and Statistics, MIT Press, vol. 71(3), pages 471-480, August.
    3. Ashok K. Mishra & Barry K. Goodwin, 1997. "Farm Income Variability and the Supply of Off-Farm Labor," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 79(3), pages 880-887.
    4. Anonymous & Hopkins, Jeffrey W., 2003. "Decoupled Payments: Household Income Transfers In Contemporary U.S. Agriculture," Agricultural Economics Reports 34057, United States Department of Agriculture, Economic Research Service.
    5. Huffman, Wallace E, 1980. "Farm and Off-Farm Work Decisions: The Role of Human Capital," The Review of Economics and Statistics, MIT Press, vol. 62(1), pages 14-23, February.
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    7. El-Osta, Hisham S. & Ahearn, Mary Clare, 1996. "Estimating the Opportunity Cost of Unpaid Farm Labor for U.S. Farm Operators," Technical Bulletins 156784, United States Department of Agriculture, Economic Research Service.
    8. A. Kimhi, 1994. "Participation Of Farm Owners In Farm And Off-Farm Work Including The Option Of Full-Time Off-Farm Work," Journal of Agricultural Economics, Wiley Blackwell, vol. 45(2), pages 232-239.
    9. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", pages 129-137.
    10. David A. Hennessy, 1998. "The Production Effects of Agricultural Income Support Policies under Uncertainty," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 80(1), pages 46-57.
    11. Kilkenny, Maureen, 1993. "Rural vs. Urban Effects of Terminating Farm Subsidies," Staff General Research Papers Archive 11121, Iowa State University, Department of Economics.
    12. Ahearn, Mary Clare & El-Osta, Hisham S. & Dewbre, Joe, 2002. "The Impact Of Government Subsidies On The Off-Farm Labor Supply Of Farm Operators," 2002 Annual meeting, July 28-31, Long Beach, CA 19825, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
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