Data from a 1998 survey of farming households in Kenya is used to estimate the effects of poor rural road infrastructure (and high market access costs) on the structure of smallholder farm production. Simultaneous estimation of cost and input share equations reveals rational responses by farmers to high access costs. In the expected continued absence of major investments in rural infrastructure in countries such as Kenya, the policy challenge is to identify and catalyse institutional innovations that reduce a range of transaction costs, increase financial liquidity, increase social capital, and reduce risk. © 2003 Elsevier Science B.V. All rights reserved.