Farms, Families, and Markets: New Evidence on Completeness of Markets in Agricultural Settings

Abstract

The farm household model has played a central role in improving the understanding of small-scale agricultural households and non-farm enterprises. Under the assumptions that all current and future markets exist and that farmers treat all prices as given, the model simplifies households’ simultaneous production and consumption decisions into a recursive form in which production can be treated as independent of preferences of household members. These assumptions, which are the foundation of a large literature in labor and development, have been tested and not rejected in several important studies including Benjamin (1992). Using multiple waves of longitudinal survey data from Central Java, Indonesia, this paper tests a key prediction of the recursive model: demand for farm labor is unrelated to the demographic composition of the farm household. The prediction is unambiguously rejected. The rejection cannot be explained by contamination due to unobserved heterogeneity that is fixed at the farm level, local area shocks or farm-specific shocks that affect changes in household composition and farm labor demand. We conclude that the recursive form of the farm household model is not consistent with the data. Developing empirically tractable models of farm households when markets are incomplete remains an important challenge.

Does Nutrition Really Matter for the Productivity of Smallholder Farmers?

“…This problem is evident among rural farmers, such as in Indonesia, where health status significantly affects productivity (Marliyati et al, 2018). This research differs from previous studies such as Croppenstedt and Muller (2000), LaFave andThomas (2016), andStrauss (1986). Previously nutrition intake is good due to healthy food availability.…”

“…However, a different scenario may arise from unhealthy, cheaper food, possibly leading to low productivity. Secondly, this study modified Croppenstedt and Muller (2000), LaFave andThomas (2016), andStrauss (1986) by adding BMI and obesity as moderator variables to contribute to the model.…”

Labor elasticities, market failures, and misallocation: Evidence from Indian agriculture

“…Some recent examples include Carletto et al ( 2013), Bevis and Barrett (2020), and Wineman and Jayne (2021). (Benjamin, 1992;Dillon & Barrett, 2017;Dillon et al, 2019;LaFave & Thomas, 2016) and how prices affect labor allocation de Castro and Teixeira (2012); Swinnen et al (2005). In addition to providing evidence of market completeness in India in a more general sense, the results also underline the point that market failure is a household-specific, not market-specific, phenomenon.…”

“…Since I use household-level fixed effects, 2 http://vdsa.icrisat.ac.in/vdsa-index.htm all regressions cluster standard errors at the household level unless otherwise reported. First, I borrow specifications from prior literature and analyze whether household demographics predict farm-level labor demand (Benjamin, 1992;Dillon & Barrett, 2017;Dillon et al, 2019;LaFave & Thomas, 2016). I diverge from the prior literature in two key ways.…”

“…While Benjamin (1992) was unable to reject complete markets, more recent literature unequivocally challenges this finding; Dillon and Barrett (2017), Dillon et al. (2019), and LaFave and Thomas (2016) all strongly reject market completeness in multiple contexts.…”