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Should Farmers Farm More? Comparing Marginal Products within Malawian Households

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  • Brummund, Peter

    (University of Alabama)

  • Merfeld, Joshua D.

    (KDI School of Public Policy and Management)

Abstract

According to standard economic theory, households should equate the marginal revenue product of an input across activities within the household. However, this prediction may not hold in the presence of risk. Using data on farm plots and non-farm enterprises in Malawi, we examine the impact of risk on the allocation decisions of agricultural households as they allocate labor across farm and non-farm production. We control for many household and production characteristics, including household fixed effects, and find farm marginal revenue product of labor (MRPL) to be consistently higher than non-farm MRPL. These results hold when restricting estimation to periods of high and low non-farm labor allocation. These results are consistent with farm production being riskier than non-farm production for most households in Malawi. These findings suggest that improved access to insurance of farming activities and wage employment opportunities could increase total household income.

Suggested Citation

  • Brummund, Peter & Merfeld, Joshua D., 2021. "Should Farmers Farm More? Comparing Marginal Products within Malawian Households," IZA Discussion Papers 14703, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp14703
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    Cited by:

    1. Joshua D. Merfeld & Peter Brummund, 2022. "The importance of specification choices when analyzing sectoral productivity gaps," Agricultural Economics, International Association of Agricultural Economists, vol. 53(4), pages 605-616, July.

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    More about this item

    Keywords

    labor productivity; agriculture; non-farm production; risk; efficiency;
    All these keywords.

    JEL classification:

    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • J43 - Labor and Demographic Economics - - Particular Labor Markets - - - Agricultural Labor Markets
    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q12 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Micro Analysis of Farm Firms, Farm Households, and Farm Input Markets
    • R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population

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