Evan D. Peet
4570 Fifth Avenue, Ste 600
Pittsburgh, PA 15213
Institutional Affiliation: Rand Corporation
NBER Working Papers and Publications
|January 2020||Farm Profits, Prices and Household Behavior|
with Daniel R. LaFave, Duncan Thomas: w26636
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 markets are complete in which case decision-making simplifies to a recursive system where consumption choices can be treated as if they are made after all production decisions. Previous empirical tests of this 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 iden...