Do rural households in developing countries make market participation and volume decisions simultaneously or sequentially? This article develops a two-stage econometric method to test between these two competing hypotheses regarding household-level marketing behavior. The first stage models the household's choice of whether to be a net buyer, autarkic, or a net seller in the market. The second stage models the quantity bought (sold) for net buyers (sellers) based on observable household characteristics. Using household data from Kenyan and Ethiopian livestock markets, we find evidence in favor of sequential decision making, the welfare implications of which we discuss.
Bibliographical noteFunding Information:
We thank Peter Berck, Marc-André Bodet, J.S. Butler, John Cockburn, Garth Holloway, David Just, Daniel Lawson, John McPeak, Christian Vossler, three anonymous referees, and the 2004 NEUDC Conference participants for useful comments as well as Erin Lentz, Sharon Osterloh, and Amare Yirbecho for data assistance. Data collection was supported by the Pastoral Risk Management (PARIMA) Project of the Global Livestock Collaborative Research Support Program (GL CRSP), funded by the Office of Agriculture and Food Security, Global Bureau, USAID, under grants DAN-1328-G-00-0046-00 and PCE-G-98-00036-00. Data analysis was supported by the GL CRSP’s Livestock Trade in Ethiopia and Kenya (LITEK) project and by the Strategies and Analyses for Growth and Access (SAGA) cooperative agreement, Africa Bureau, USAID, under grant HFM-A-00-01-00132-00. The views expressed are solely the authors’ and do not represent any official agency. All remaining errors are ours alone.
- Agricultural household models
- Discrete choice and limited dependent variables
- Livestock markets
- Market participation
- Transactions costs