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An Ordered Tobit Model of Market Participation: Evidence from Kenya and Ethiopia
Author(s) -
Bellemare Marc F.,
Barrett Christopher B.
Publication year - 2006
Publication title -
american journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.949
H-Index - 111
eISSN - 1467-8276
pISSN - 0002-9092
DOI - 10.1111/j.1467-8276.2006.00861.x
Subject(s) - tobit model , kenya , economics , welfare , developing country , livestock , econometric model , test (biology) , microeconomics , public economics , econometrics , economic growth , market economy , ecology , paleontology , political science , law , biology
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.