Upcoming Seminar

IFPRI’s Applied Microeconomics & Development Seminar Series provides a forum for researchers to present top-quality applied microeconomics and development work. Seminars are held on the first and third Thursdays of each month at IFPRI’s Washington DC office (2033 K St NW). Please contact Julie Lang (j.lang@cgiar.org) if you have any questions.

August 3
Speaker: Daniel LaFave, Assistant Professor at Colby College
12:00-1:15 pm
Conference Room 7AB

Who Behaves as if Markets are Complete?
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 the complete markets 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 markets are complete and those that do not. The complete markets assumption is not rejected for farm households with relatively more land but is rejected for farmers with relatively less land. The tests are straightforward to implement and provide important information for interpretation of results from studies of development in rural settings.

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