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Abstract

This study uses an agricultural household model to examine the tradeoff between farm profitability and a household head’s desire for market work. The theoretical analysis is a comparative statics analysis relative to the two variables. Results show that the tradeoff can arise for non-participants in the labor market under plausible conditions and that the desire for market work has no effect on farm profitability for participants in the labor market. The empirical analysis derives simultaneous equations of the two variables. These equations reveal exclusion restrictions on specific exogenous variables and “local separability” of the model in the equation of farm profitability. Estimation results for Chinese farm households in 2002 verify the tradeoff for the Western region, although it is not found for the other regions. The results are also used to demonstrate the plausibility of the model under “local separability” compared with that under “global separability.”

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