Correlated Non-Classical Measurement Errors, ‘Second Best’ Policy Inference and the Inverse Size-Productivity Relationship in Agriculture

56 Pages Posted: 2 Mar 2018

See all articles by Kibrom Araya Abay

Kibrom Araya Abay

University of Copenhagen

Gashaw Tadesse Abate

International Food Policy Research Institute (IFPRI)

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management

Bernard Tanguy

International Food Policy Research Institute (IFPRI)

Date Written: February 15, 2018

Abstract

We show analytically and empirically that non-classical measurement errors in the two key variables in a hypothesized relationship can bias the estimated relationship between them in any direction. Furthermore, if these measurement errors are correlated, correcting for either one alone can aggravate bias in the parameter estimate of interest relative to ignoring mismeasurement in both variables, a ‘second best’ result with implications for a broad class of economic phenomena of policy interest. We illustrate these results empirically by demonstrating the implications of mismeasured agricultural output and plot size for the long-debated (inverse) relationship between size and productivity.

Keywords: ETHIOPIA, EAST AFRICA, AFRICA SOUTH OF SAHARA, AFRICA, agricultural development, smallholders, accuracy, measurement, agricultural productivity, field size, household surveys, wheat, correlated errors, non-classical measurement error, bias

Suggested Citation

Abay, Kibrom Araya and Abate, Gashaw Tadesse and Barrett, Christopher B. and Tanguy, Bernard, Correlated Non-Classical Measurement Errors, ‘Second Best’ Policy Inference and the Inverse Size-Productivity Relationship in Agriculture (February 15, 2018). IFPRI Discussion Paper 1710, Available at SSRN: https://ssrn.com/abstract=3132737

Kibrom Araya Abay (Contact Author)

University of Copenhagen ( email )

Nørregade 10
Copenhagen, København DK-1165
Denmark

Gashaw Tadesse Abate

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

HOME PAGE: http://www.ifpri.org

Christopher B. Barrett

Cornell University - Charles H. Dyson School of Applied Economics & Management ( email )

315 Warren Hall
Ithaca, NY 14853-7801
United States
607-255-4489 (Phone)
607-255-9984 (Fax)

HOME PAGE: http://aem.cornell.edu/faculty_sites/cbb2/

Bernard Tanguy

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

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