Should Farmers Farm More? Comparing Marginal Products within Malawian Households

49 Pages Posted: 12 Sep 2018

See all articles by Peter Brummund

Peter Brummund

University of Alabama - Department of Economics, Finance and Legal Studies

Joshua D. Merfeld

Robert F. Wagner Graduate School of Public Service, New York University

Date Written: August 30, 2018

Abstract

According to standard economic theory, households should equate the marginal revenue product of an input across activities within the household. Using data on agricultural plots and non-farm enterprises in Malawi, we test whether the marginal revenue product of labor (MRPL) is equal across agricultural and non-farm production within a household. We control for many household and production characteristics, including household fixed effects, and find agricultural MRPL to be consistently higher than non-farm MRPL. These results hold when restricting estimation to periods of high and low non-farm labor allocation. Further analyses suggest both production and price risk may be partially responsible for these deviations from MRPL equality. We also show that comparing average revenue products of labor is not sufficient evidence for claiming allocative inefficiency. In our data, the average revenue products of labor lead to an erroneous conclusion, reiterating the need to compare marginal products when testing for allocative efficiency.

Keywords: Labor productivity, agriculture, non-farm production, risk, efficiency

JEL Classification: J24, J43, O13, R23

Suggested Citation

Brummund, Peter and Merfeld, Joshua D., Should Farmers Farm More? Comparing Marginal Products within Malawian Households (August 30, 2018). Available at SSRN: https://ssrn.com/abstract=3241681 or http://dx.doi.org/10.2139/ssrn.3241681

Peter Brummund

University of Alabama - Department of Economics, Finance and Legal Studies ( email )

P.O. Box 870244
Tuscaloosa, AL 35487
United States

Joshua D. Merfeld (Contact Author)

Robert F. Wagner Graduate School of Public Service, New York University ( email )

The Puck Building, 3040B
New York, NY 10003-711
United States

HOME PAGE: http://sites.google.com/site/joshmerfeld

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