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FARM HOUSEHOLD PRODUCTION IN THE PRESENCE OF RESTRICTIONS ON DEBT: THEORY AND POLICY IMPLICATIONS
Author(s) -
Phimister Euan
Publication year - 1995
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/j.1477-9552.1995.tb00783.x
Subject(s) - economics , production (economics) , debt , consumption (sociology) , profit (economics) , household debt , payment , agricultural economics , monetary economics , microeconomics , macroeconomics , finance , social science , sociology
In this paper a two period life cycle model of the farm household is constructed allowing for production and restrictions on debt in which the consumption and production decisions of the farm household are simultaneous. It is shown that the farm household's production responses to exogenous changes may be qualitatively different to that predicted by the profit‐maximising model when all markets are perfect. In particular, when the household is debt constrained, ‘perverse’ output effects are possible with output increasing in response to output price decreases. Further, for such households, compensation payments will have production effects. Finally, the financial situation of the farm has an impact on production for debt constrained farms.