# A test of whether millet acreage in Niger is determined by official or private market prices

TL;DR: In this paper, non-nested hypothesis tests are conducted for millet-acreage response equations and the results show that prices from the larger private market are the prices that matter.

Abstract: Niger has two separate marketing channels for grain: one is the official system operated by the government; the other is a parallel channel of private traders. Researchers or policy-makers wanting to study effects of price policies on producers are faced with two sets of prices. This paper seeks to answer the question, which prices matter? Non-nested hypothesis tests are conducted for millet-acreage response equations. The results show that prices from the larger private market are the prices that matter.

## SummaryÂ (2 min read)

Jump to:Â [Introduction] â€“ [Theoretical model] â€“ [and] â€“ [Empirical model specifications and non-nested hypothesis testing procedures:] â€“ [Empirical model results and discussion] and [Summary and conclusions]

### Introduction

- Niger has an official grain market operated by the Office de Produits Vivriers du Niger (OPVN) and a parallel grain-marketing channel of private traders.
- This network of private traders controls a major share of the total volume of grains marketed in Niger.
- Maina (1982) , in an econometric estimation of production responses, asserted that Nigerien farmers do not respond to official market prices.
- These hypotheses are tested using non-nested hypotheses tests.

### Theoretical model

- Millet is the major crop in Niger, accounting for 85% of the total area cultivated in 1983.
- The other crops-sorghum, cowpeas and peanuts-represent a small fraction of total production.
- Sorghum and cowpea acreage were 10% and 8% respectively of total acreage cultivated in 1983.
- Only millet acreage equations are considered in this study, since millet is the most widely cultivated crop.
- The production possibility set for the farm can be written following Varian (1982) as: Y(X) = [X, Y: F(X) ~ Y; X 1 = XtJ (1) where Y(X) represents the restricted production possibility set with a fixed amount of land available for production.

### and

- The derived production function in (2) will display decreasing returns to scale since the amount of one input (land) is limited (Varian, 1982, p. 20) .
- Elliot Berg Associates (1983) asserted that 'the structural characteristics of Niger's markets give a strong presumption of competitiveness.
- Since the authors are investigating acreage decisions, (3) is the relevant portion of the farmer's maximization problem.
- No satisfactory price for labor could be obtained, and so price of labor could not be included.

### Empirical model specifications and non-nested hypothesis testing procedures:

- Based on the previous theoretical considerations, the following alternative empirical model specifications are hypothesized for the millet acreage demand equations.
- Let the first hypothesis (H 1 ) be that official prices are the relevant prices in millet production.
- The two tests are used in this study because of the possible fragility of results to alternative test procedures.
- Thus, even though the private-market prices shown in Table 1 are substantially larger than official prices, official prices could still be higher during the seasonal low following harvest or in remote areas.

### Empirical model results and discussion

- Use of the private market gives estimates of the structural parameters consistent with theoretical expectations (Table 2 ).
- In the official price acreage equation, neither coefficient on the lagged official prices is statistically significant.
- Based on the correct signs on the coefficients of the explanatory variables,.
- The elasticity of millet acreage demand to market prices is important for policy analyses in Niger.
- Long-run acreage elasticity estimates from Maina (1982) (official price elasticities) were 0.03 for millet prices.

### Summary and conclusions

- This study was undertaken to determine whether Nigerian millet producers respond to private market prices and/or official market prices.
- Alternative specifications of millet acreage equations were hypothesized and nonnested hypothesis test procedures were used to test the hypotheses.
- The model with official market prices was rejected, and the null hypothesis that private market prices were sufficient for explaining acreage demand could not be rejected.
- The private market specification also gave results closer to theoretical expectations than did the official market specification.
- Farmers respond to private market prices rather than official market prices.

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01 Jan 2010

20Â citations

### Cites background from "A test of whether millet acreage in..."

...Brorsen and Adesina (1990) reported that Niger has two separate marketing channels for grain....

[...]

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TL;DR: In this paper, price response of maize acreage in Benin was estimated with a particular emphasis on whether the prices were producer prices in rural markets or retail prices in urban markets, and a second difference between prices was examined through a price adjustment model which takes into account the distortions caused by local units on maize price when one is concerned with the pricing system in the private marketing network relating rural and urban areas.

Abstract: Price response of maize acreage in Benin was estimated with a particular emphasis on whether the prices were producer prices in rural markets or retail prices in urban markets. A second difference between prices was examined through a price adjustment model which takes into account the distortions caused by local units on maize price when one is concerned with the pricing system in the private marketing network relating rural and urban areas. Urban market price specification appeared to be the most relevant statistically in explaining acreage decisions in Mono province. Price elasticity of acreage was 0.445 in this area while its value, around 0.10, was not significant for Benin as a whole. The use of adjusted urban prices enabled an increase of 5.6% of the elasticity in Mono province. The urban vs. rural difference was apparent, but the coefficients of the price variable were not significant in equations with rural prices. The latter were not as reliable as those of the urban market of Dantokpa (in Cotonou city) collected by the Institute of Statistics (INSAE) and the GTZ project.

4Â citations

### Cites background from "A test of whether millet acreage in..."

...Therefore, instead of testing whether maize (the cereal widely cultivated and marketed in Benin) acreage is determined by official or private market prices as was recently done for millet in Niger (Brorsen and Adesina, 1990), this paper examines maize supply response under differential prices in the private system....

[...]

##### References

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TL;DR: In this paper, several procedures are proposed for testing the specification of an econometric model in the presence of one or more other models which purport to explain the same phenomenon.

Abstract: Several procedures are proposed for testing the specification of an econometric model in the presence of one or more other models which purport to explain the same phenomenon. These procedures are shown to be closely related, but not identical, to the non-nested hypothesis tests recently proposed by Pesaran and Deaton [7], and to have similar asymptotic properties.. They are remarkably simple both conceptually and computationally, and, unlike earlier techniques, they may be used to test against several alternative models simultaneously. Some empirical results are presented which suggest that the ability of the tests to reject false hypotheses is likely to be rather good in practice.

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TL;DR: In this article, a modification of the Neyman-Pearson maximum-likelihood ratio test was suggested for this problem, and general comments on the formulation of the problem, a general large sample form for the test, and, finally, a number of examples.

Abstract: SUMMARY It is required to test a composite null hypothesis. High power is desired against a composite alternative hypothesis that is not in the same parametric family as the null hypothesis. In an earlier paper a modification of the Neyman-Pearson maximum-likelihood ratio test was suggested for this problem. The present paper gives some general comments on the formulation of the problem, a general large-sample form for the test, and, finally, a number of examples.

759Â citations

01 Jan 2005

TL;DR: In this paper, a modification of the Neyman-Pearson maximum-likelihood ratio test was suggested for this problem, and general comments on the formulation of the problem, a general large sample form for the test, and, finally, a number of examples.

Abstract: SUMMARY It is required to test a composite null hypothesis. High power is desired against a composite alternative hypothesis that is not in the same parametric family as the null hypothesis. In an earlier paper a modification of the Neyman-Pearson maximum-likelihood ratio test was suggested for this problem. The present paper gives some general comments on the formulation of the problem, a general large-sample form for the test, and, finally, a number of examples.

492Â citations

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The RiverBank

^{1}TL;DR: In this paper, the authors show that the use of residual variance as a choice criterion gives rise " on average " to the correct choice given that the following two conditions are fulfilled: (i) one of the alternative models considered should be the true model, in the sense that all the classical assumptions for that model be satisfied, and (ii) the explanatory variables entering the specification of the models should all be fixed in repeated samples.

Abstract: procedure employed for this purpose has been first to check the regression coefficients for their " plausibility " and then to select that model which has the least residual variance, or, equivalently, the one which has the highest multiple correlation coefficient when adjusted for the loss of degrees of freedom. Argument in support of such a procedure has been advanced by Theil [6] who shows that the use of residual variance as a choice criterion gives rise " on average " to the correct choice given that the following two conditions are fulfilled. Firstly, one of the alternative models considered should be the " true model " in the sense that all the classical assumptions for that model be satisfied. Secondly, the explanatory variables entering the specification of the models should all be fixed in repeated samples. Besides the " goodness of fit " criterion, the models are also often casually compared with respect to the values of the Durbin-Watson statistics in order to ensure that the disturbances of the " true model " are not serially correlated as is required by the first condition cited above.

411Â citations