IDEAS home Printed from https://ideas.repec.org/p/iza/izadps/dp13682.html
   My bibliography  Save this paper

Smallholders, Market Failures, and Agricultural Production: Evidence from India

Author

Listed:
  • Merfeld, Joshua D.

    (KDI School of Public Policy and Management)

Abstract

Market completeness has important implications for household behavior. I firmly reject complete markets for smallholders but am unable to do so for non-smallholders. This leads to important differences in production behavior: smallholders reallocate labor across activities less in response to intra-seasonal crop price changes than do non-smallholders. A counterfactual exercise indicates smallholders could increase revenue by almost nine percent if they were to reallocate labor similarly to non-smallholders. The overall pattern of results is consistent with small-holders lacking sufficient wage employment opportunities. Since non-smallholders have to hire in for agricultural production, this lack of opportunities does not affect their decisions.

Suggested Citation

  • Merfeld, Joshua D., 2020. "Smallholders, Market Failures, and Agricultural Production: Evidence from India," IZA Discussion Papers 13682, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp13682
    as

    Download full text from publisher

    File URL: https://docs.iza.org/dp13682.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Shoumitro Chatterjee, 2023. "Market Power and Spatial Competition in Rural India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 138(3), pages 1649-1711.
    2. Hanan G. Jacoby & Emmanuel Skoufias, 1997. "Risk, Financial Markets, and Human Capital in a Developing Country," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 64(3), pages 311-335.
    3. Emily Breza & Supreet Kaur & Yogita Shamdasani, 2021. "Labor Rationing," American Economic Review, American Economic Association, vol. 111(10), pages 3184-3224, October.
    4. Strauss, John, 1986. "Does Better Nutrition Raise Farm Productivity?," Journal of Political Economy, University of Chicago Press, vol. 94(2), pages 297-320, April.
    5. Townsend, Robert M, 1994. "Risk and Insurance in Village India," Econometrica, Econometric Society, vol. 62(3), pages 539-591, May.
    6. Mark R. Rosenzweig & Christopher Udry, 2014. "Rainfall Forecasts, Weather, and Wages over the Agricultural Production Cycle," American Economic Review, American Economic Association, vol. 104(5), pages 278-283, May.
    7. Wouter Zant, 2018. "Trains, Trade, and Transaction Costs: How Does Domestic Trade by Rail Affect Market Prices of Malawi Agricultural Commodities?," The World Bank Economic Review, World Bank, vol. 32(2), pages 334-356.
    8. Meenakshi, J.V. & Banerji, A., 2005. "The unsupportable support price: an analysis of collusion and government intervention in paddy auction markets in North India," Journal of Development Economics, Elsevier, vol. 76(2), pages 377-403, April.
    9. Supreet Kaur, 2019. "Nominal Wage Rigidity in Village Labor Markets," American Economic Review, American Economic Association, vol. 109(10), pages 3585-3616, October.
    10. Daniel LaFave & Duncan Thomas, 2016. "Farms, Families, and Markets: New Evidence on Completeness of Markets in Agricultural Settings," Econometrica, Econometric Society, vol. 84, pages 1917-1960, September.
    11. Strauss, John, 1984. "Joint determination of food consumption and production in rural Sierra Leone : Estimates of a household-firm model," Journal of Development Economics, Elsevier, vol. 14(1), pages 77-103.
    12. Hanan G. Jacoby, 1993. "Shadow Wages and Peasant Family Labour Supply: An Econometric Application to the Peruvian Sierra," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 60(4), pages 903-921.
    13. Marc F. Bellemare & Christopher B. Barrett & David R. Just, 2013. "The Welfare Impacts of Commodity Price Volatility: Evidence from Rural Ethiopia," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 95(4), pages 877-899.
    14. Seema Jayachandran, 2006. "Selling Labor Low: Wage Responses to Productivity Shocks in Developing Countries," Journal of Political Economy, University of Chicago Press, vol. 114(3), pages 538-575, June.
    15. Mark R. Rosenzweig & Christopher R. Udry, 2019. "Assessing the Benefits of Long-Run Weather Forecasting for the Rural Poor: Farmer Investments and Worker Migration in a Dynamic Equilibrium Model," NBER Working Papers 25894, National Bureau of Economic Research, Inc.
    16. Sadoulet, Elisabeth & de Janvry, Alain & Benjamin, Catherine, 1996. "Household Behavior With Imperfect Labor Markets," CUDARE Working Papers 25044, University of California, Berkeley, Department of Agricultural and Resource Economics.
    17. Jha, Raghbendra & Bhattacharyya, Sambit & Gaiha, Raghav, 2011. "Social safety nets and nutrient deprivation: An analysis of the National Rural Employment Guarantee Program and the Public Distribution System in India," Journal of Asian Economics, Elsevier, vol. 22(2), pages 189-201, April.
    18. Esther Gehrke, 2019. "An Employment Guarantee as Risk Insurance? Assessing the Effects of the NREGS on Agricultural Production Decisions," The World Bank Economic Review, World Bank, vol. 33(2), pages 413-435.
    19. Timothy G. Conley & Christopher R. Udry, 2010. "Learning about a New Technology: Pineapple in Ghana," American Economic Review, American Economic Association, vol. 100(1), pages 35-69, March.
    20. Dillon, Brian & Brummund, Peter & Mwabu, Germano, 2019. "Asymmetric non-separation and rural labor markets," Journal of Development Economics, Elsevier, vol. 139(C), pages 78-96.
    21. Emmanuel Skoufias, 1994. "Using Shadow Wages to Estimate Labor Supply of Agricultural Households," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 76(2), pages 215-227.
    22. Barnum, Howard N. & Squire, Lyn, 1979. "An econometric application of the theory of the farm-household," Journal of Development Economics, Elsevier, vol. 6(1), pages 79-102, February.
    23. Tavneet Suri, 2011. "Selection and Comparative Advantage in Technology Adoption," Econometrica, Econometric Society, vol. 79(1), pages 159-209, January.
    24. Udry, Christopher, 1996. "Gender, Agricultural Production, and the Theory of the Household," Journal of Political Economy, University of Chicago Press, vol. 104(5), pages 1010-1046, October.
    25. Dillon, Brian & Barrett, Christopher B., 2017. "Agricultural factor markets in Sub-Saharan Africa: An updated view with formal tests for market failure," Food Policy, Elsevier, vol. 67(C), pages 64-77.
    26. Benjamin, Dwayne, 1992. "Household Composition, Labor Markets, and Labor Demand: Testing for Separation in Agricultural Household Models," Econometrica, Econometric Society, vol. 60(2), pages 287-322, March.
    27. Marc F. Bellemare & Casey J. Wichman, 2020. "Elasticities and the Inverse Hyperbolic Sine Transformation," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 82(1), pages 50-61, February.
    28. Suman Chakrabarti & Avinash Kishore & Devesh Roy, 2018. "Effectiveness of Food Subsidies in Raising Healthy Food Consumption: Public Distribution of Pulses in India," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 100(5), pages 1427-1449.
    29. de Janvry, Alain & Fafchamps, Marcel & Sadoulet, Elisabeth, 1991. "Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained," Economic Journal, Royal Economic Society, vol. 101(409), pages 1400-1417, November.
    30. de Janvry, Alain & Fafchamps, M. & Sadoulet, Elisabeth, 1991. "Peasant Household Behavior with Missing Markets: Some Paradoxes Explain," CUDARE Working Papers 198579, University of California, Berkeley, Department of Agricultural and Resource Economics.
    31. J. Taylor & Irma Adelman, 2003. "Agricultural Household Models: Genesis, Evolution, and Extensions," Review of Economics of the Household, Springer, vol. 1(1), pages 33-58, January.
    32. Mark R Rosenzweig & Christopher Udry, 2020. "External Validity in a Stochastic World: Evidence from Low-Income Countries," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 87(1), pages 343-381.
    33. Anjini Kochar, 1999. "Smoothing Consumption by Smoothing Income: Hours-of-Work Responses to Idiosyncratic Agricultural Shocks in Rural India," The Review of Economics and Statistics, MIT Press, vol. 81(1), pages 50-61, February.
    34. Chatterjee, Shoumitro & Kapur, Devesh, 2017. "Six Puzzles in Indian Agriculture," India Policy Forum, National Council of Applied Economic Research, vol. 13(1), pages 185-229.
    35. Mark R. Rosenzweig, 1980. "Neoclassical Theory and the Optimizing Peasant: An Econometric Analysis of Market Family Labor Supply in a Developing Country," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 94(1), pages 31-55.
    36. Theresa Osborne, 2004. "Market News in Commodity Price Theory: Application to the Ethiopian Grain Market," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 71(1), pages 133-164.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Merfeld, Joshua D., 2021. "Sectoral Wage Gaps and Gender in Rural India," IZA Discussion Papers 14391, Institute of Labor Economics (IZA).
    2. Radha R. Ashrit, 2023. "Estimation of technical efficiency of Indian farms for major crops during 2013–2014 and 2017–2018: a stochastic Frontier production approach," SN Business & Economics, Springer, vol. 3(2), pages 1-32, February.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Daniel R. LaFave & Evan D. Peet & Duncan Thomas, 2020. "Farm Profits, Prices and Household Behavior," NBER Working Papers 26636, National Bureau of Economic Research, Inc.
    2. Merfeld, Joshua, 2021. "Misallocation and Agricultural Production: Evidence from India," 2021 Conference, August 17-31, 2021, Virtual 315914, International Association of Agricultural Economists.
    3. Merfeld, Joshua D., 2022. "Labor Elasticities, Market Failures, and Misallocation: Evidence from Indian Agriculture," 96th Annual Conference, April 4-6, 2022, K U Leuven, Belgium 321214, Agricultural Economics Society - AES.
    4. Joshua D. Merfeld, 2023. "Labor elasticities, market failures, and misallocation: Evidence from Indian agriculture," Agricultural Economics, International Association of Agricultural Economists, vol. 54(5), pages 623-637, September.
    5. Kopper, Sarah A., 2018. "Agricultural labor markets and fertilizer demand: Intensification is not a single factor problem for non-separable households," 2018 Annual Meeting, August 5-7, Washington, D.C. 274184, Agricultural and Applied Economics Association.
    6. Daniel LaFave & Duncan Thomas, 2016. "Farms, Families, and Markets: New Evidence on Completeness of Markets in Agricultural Settings," Econometrica, Econometric Society, vol. 84, pages 1917-1960, September.
    7. Tsuda, Shunsuke, 2022. "Refugee inflows, surplus farm labor, and crop marketization in rural Africa," Journal of Development Economics, Elsevier, vol. 155(C).
    8. Maria Jones & Florence Kondylis & John Loeser & Jeremy Magruder, 2022. "Factor Market Failures and the Adoption of Irrigation in Rwanda," American Economic Review, American Economic Association, vol. 112(7), pages 2316-2352, July.
    9. Wang, Xiaobing, 2007. "Labor market behavior of Chinese rural households during transition," Studies on the Agricultural and Food Sector in Transition Economies, Leibniz Institute of Agricultural Development in Transition Economies (IAMO), volume 42, number 92321.
    10. Katharina Grabrucker & Michael Grimm, 2021. "Is There a Rainbow after the Rain? How Do Agricultural Shocks Affect Non‐Farm Enterprises? Evidence from Thailand," American Journal of Agricultural Economics, John Wiley & Sons, vol. 103(5), pages 1612-1636, October.
    11. Dillon, Brian & Barrett, Christopher B., 2017. "Agricultural factor markets in Sub-Saharan Africa: An updated view with formal tests for market failure," Food Policy, Elsevier, vol. 67(C), pages 64-77.
    12. Elisa Meneghello & Martina Menon & Federico Perali & Furio Rosati, 2022. "The Shadow Wage of Child Labor: An application to Nepal," Working Papers 8, SITES.
    13. repec:eee:labchp:v:3:y:1999:i:pb:p:2859-2939 is not listed on IDEAS
    14. Cui, Xiaomeng & Tang, Qu, 2024. "Extreme heat and rural household adaptation: Evidence from Northeast China," Journal of Development Economics, Elsevier, vol. 167(C).
    15. Chen, Jing & Rozelle, Scott, 2003. "Market Emergence And The Rise And Fall Of Backyard Hog Production In China," 2003 Annual meeting, July 27-30, Montreal, Canada 21969, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    16. Bagamba, Fredrick & Burger, Kees & Kuyvenhoven, Arie, 2007. "Determinants of smallholder farmer labour allocation decisions in Uganda," 106th Seminar, October 25-27, 2007, Montpellier, France 7920, European Association of Agricultural Economists.
    17. Douglas Gollin & Christopher Udry, 2021. "Heterogeneity, Measurement Error, and Misallocation: Evidence from African Agriculture," Journal of Political Economy, University of Chicago Press, vol. 129(1), pages 1-80.
    18. Dillon, Brian & Brummund, Peter & Mwabu, Germano, 2019. "Asymmetric non-separation and rural labor markets," Journal of Development Economics, Elsevier, vol. 139(C), pages 78-96.
    19. Md Shafiul Azam & Katsushi Imai & Raghav Gaiha, 2012. "Agricultural Supply Response and Smallholders Market Participation: the Case of Cambodia," Economics Discussion Paper Series 1208, Economics, The University of Manchester.
    20. Henning, Christian H.C.A. & Henningsen, Arne, 2005. "Modeling Price Response of Farm Households Under Imperfect Labor Markets: A Farm Household Approach to Family Farms in Poland," 94th Seminar, April 9-10, 2005, Ashford, UK 24431, European Association of Agricultural Economists.
    21. Hayatullah Ahmadzai, 2018. "Factor market participation and tests for separability in Afghanistan," Discussion Papers 2018-10, University of Nottingham, CREDIT.

    More about this item

    Keywords

    markets; market failures; agriculture; labor;
    All these keywords.

    JEL classification:

    • J20 - Labor and Demographic Economics - - Demand and Supply of Labor - - - General
    • 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
    • Q13 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agricultural Markets and Marketing; Cooperatives; Agribusiness

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iza:izadps:dp13682. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Holger Hinte (email available below). General contact details of provider: https://edirc.repec.org/data/izaaade.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.