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The importance of accounting for unobserved heterogeneity, state-dependence and differences in residual variances across groups: An application to Irish Farmers land market participation decisions

Author

Listed:
  • Stephen O'Neill

    (Department of Economics, National University of Ireland, Galway, Ireland)

  • Kevin Hanrahan

    (Rural Economy and Development Programme, Teagasc, Athenry, Co. Galway, Ireland)

Abstract

Land is an essential input into agricultural production. A grwoing literature is concerned with the factors influencing farmers’ land market participation decisions in developing countries, with developed countries largely ignored. Current best-practise in the land market participation literature is exemplified by Holden et al. (2007) who use a dynamic model which allows for state-dependence and unobserved heterogeneity. Much of the literature fails to adequately deal with these features of land market decisions. In addition, a single model is used to represent all farm types. In this paper, we firstly consider the factors influencing land market participation decisions in a developing country, Ireland, while allowing for state-dependence, unobserved heterogeneity and differences across farm tyes. We compare these results to those that are obtained while ignoring state-dependence, unobserved heterogeneity and differences between farm types. Our results suggest that some caution may be warranted when these aspects are ignored when if fact they are present.

Suggested Citation

  • Stephen O'Neill & Kevin Hanrahan, 2010. "The importance of accounting for unobserved heterogeneity, state-dependence and differences in residual variances across groups: An application to Irish Farmers land market participation decisions," Working Papers 1005, Rural Economy and Development Programme,Teagasc.
    • Handle: RePEc:tea:wpaper:1005
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    References listed on IDEAS

    as
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