Local versus Global Separability in Agricultural Household Models: The Factor Price Equalization Effect of Land Transfer Rights

Michael Carter and Yang Yao

American Journal of Agricultural Economics, 2002, vol. 84, issue 3, 702-715

Abstract: Commonly employed global tests for separability between production and consumption decisions are theoretically inappropriate when the market failures creating non-separabilities differentially constrain some, but not all households. Simulated maximum likelihood estimates using Chinese panel data reject the restrictions implied by a global separability test in favor of regime-specific or local separability tests. The estimates also show that a global approach to separability obscures the significant effect that less-encumbered land transfer rights would have on shadow factor price equalization across households and allocative efficiency. The findings on transfer rights suggest a resolution to the debate in China on further property rights reform. Copyright 2002, Oxford University Press.

Date: 2002
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