Bring a lunch and join us for our first seminar of Spring 2019

Friday, Feb. 8     Simon Center 125   12:00 - 1:00pm

*Please note, our first two seminars will be held on Fridays. We will resume a regular Monday schedule on Feb. 18.

Our guest speaker is Daniel LaFave, Colby College

The farm household model, in which decisions about production and consumption are made simultaneously, lies at the heart of many models of development. Empirically modelling these simultaneous choices is not straightforward. The vast majority of empirical studies assume that farm households behave as if production and consumption are separable in which case decisionmaking simplifies to a recursive system where consumption choices can be treated as if they are made after all production decisions. Previous empirical tests of the separability assumption have relied on restrictions on production decisions. We develop a new approach to testing based on household consumption choices and implement the procedure using data from rural Indonesia. Relative to production-side tests, the consumption-based test is well-suited to identifying those farm households in any setting who behave as if production is independent of consumption and
those that do not. We find that larger farmers behave as if this separability holds but the behavior of small farmers is not consistent with the recursive assumption. The tests are straightforward to implement and the results provide opportunities to identify the behaviors that household adopt when markets are incomplete as well as interpret evidence from studies of
development in rural settings.