Should Farmers Farm More? Comparing Marginal Products within Malawian Households
Examines the impact of risk on the allocation decisions of agricultural households as they allocate labour across farm and non-farm production
Abstract
According to standard economic theory, households should equate the marginal revenue product of an input across activities within the household. However, this prediction may not hold in the presence of risk. Using data on farm plots and non-farm enterprises in Malawi, we examine the impact of risk on the allocation decisions of agricultural households as they allocate labour across farm and non-farm production. We control for many household and production characteristics, including household fixed effects, and find farm marginal revenue product of labor (MRPL) to be consistently higher than non-farm MRPL. These results hold when restricting estimation to periods of high and low non-farm labour allocation. These results are consistent with farm production being riskier than non-farm production for most households in Malawi. These findings suggest that improved access to insurance of farming activities and wage employment opportunities could increase total household income.
This research is part of the Gender, Growth and Labour Markets in Low Income Countries programme
Citation
Brummund, P. and Merfeld, J. D. (2022). “Should Farmers Farm More? Comparing Marginal Products within Malawian Households”. G2LM LIC Working Paper No. 57.
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Should Farmers Farm More? Comparing Marginal Products within Malawian Households