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Abstract

This paper test farm households' joint decisions to work off-farm, and their investments in farm capital respectively, using a farm level data set involving 252 sole proprietorships in Southwestern Minnesota. Time series are collected from the period 1993 through 2002 and estimation is done using a recursive two-step simultaneous censored equations model. Strong support is found for endogeneity of farm capital in an off-farm reliance model as well as for of off-farm income reliance in a farm capital model. In addition, evidence of true state dependence in off-farm income reliance is supported by the data.

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