Nonseparable Farm Household Decisions in a Computable General Equilibrium Model

TLDR: In this paper, the authors show that in many developing country settings, farm household production and consumption decisions are "nonseparable"; that is, the farm household cannot be viewed as a separate or independent profit-maximizing producer and utility-maxIMizing consumer.

Abstract: Emerging empirical evidence and microeconomic theory suggest strongly that, in many developing country settings, farm household production and consumption decisions are "nonseparable"; that is, the farm household cannot be viewed as a separate or independent profit-maximizing producer and utility-maximizing consumer. The existence of such nonseparability indicates the presence of market imperfections or failures that may have important policy implications. For example, depending on the nature of the market imperfections, there may be "threshold" effects whereby policy changes have no effect on household behavior until the change is "large" in some measure. In this environment, policy analysis assuming the existence of perfect markets may badly misstate the impact of policy changes on producer behavior and household welfare.