Ordered Tobit Model of Market Participation: Evidence from Kenya and Ethiopia

• Published in: American journal of agricultural economics 2006-05, Vol.88 (2), p.324-337
• Main Authors: Bellemare, Marc F, Barrett, Christopher B
• Format: Article
• Language: English
• Subjects: Agricultural economics; agricultural household models; case studies; costs and returns; Decision making; decision support systems; Developing countries; discrete choice and limited dependent variables; econometric models; Econometrics; Economic models; Ethiopia; farm operator households; Fixed costs; Herding; Herds; Household budgets; Household economics; Households; Hypotheses; Kenya; LDCs; Livestock; livestock markets; livestock production; Market access; market participation; Market prices; Marketing; marketing costs; O120; O130; Participation; Pastoralism; Purchasing; Q120; Q130; Rural areas; rural economics; Sales volume; small-scale farming; Studies; Tobit model; Transaction costs; transactions costs; Variable costs
• ISSN: 0002-9092; 1467-8276
• DOI: 10.1111/j.1467-8276.2006.00861.x

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.