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Incomplete Credit Markets and Commodity Marketing Behaviour
Author(s) -
Stephens Emma C.,
Barrett Christopher B.
Publication year - 2011
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.1477-9552.2010.00274.x
Subject(s) - market liquidity , commodity , sample (material) , arbitrage , economics , transaction cost , selection (genetic algorithm) , database transaction , business , monetary economics , econometrics , microeconomics , financial economics , finance , chemistry , chromatography , artificial intelligence , computer science , programming language
We use a simple theoretical model of seasonal market participation in the presence of liquidity constraints and transaction costs to explain the ‘sell low, buy high’ puzzle in which some households do not take advantage of inter‐temporal price arbitrage through storage and sell output postharvest at prices lower than observed prices for purchases in the subsequent lean season. We test our model with data from western Kenya using maximum likelihood estimation of a multivariate sample selection model of market participation. Access to off‐farm income and credit indeed seem to influence crop sales and purchase behaviours in a manner consistent with the hypothesised patterns.