Subsistence Response to Market Shocks

Micro-economic models posit that transaction costs isolate subsistence producers from output market shocks. We integrate microeconomic models of many heterogeneous households into a general-equilibrium model and show that supply on subsistence farms may respond, in apparently perverse ways, to changes in output market prices. Price shocks in markets for staple goods are transmitted to subsistence producers through interactions in factor markets. In the case presented, a decrease in the market price of maize reduces wages and land rents, stimulating maize production by subsistence households; however, real income of subsistence households falls.


Issue Date:
2005-07
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/190906
Total Pages:
34
Series Statement:
Working Paper
05-004




 Record created 2017-04-01, last modified 2017-12-17

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