Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245754 
Year of Publication: 
2021
Series/Report no.: 
IZA Discussion Papers No. 14703
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
According to standard economic theory, households should equate the marginal revenue product of an input across activities within the household. However, this prediction may not hold in the presence of risk. Using data on farm plots and non-farm enterprises in Malawi, we examine the impact of risk on the allocation decisions of agricultural households as they allocate labor across farm and non-farm production. We control for many household and production characteristics, including household fixed effects, and find farm marginal revenue product of labor (MRPL) to be consistently higher than non-farm MRPL. These results hold when restricting estimation to periods of high and low non-farm labor allocation. These results are consistent with farm production being riskier than non-farm production for most households in Malawi. These findings suggest that improved access to insurance of farming activities and wage employment opportunities could increase total household income.
Subjects: 
labor productivity
agriculture
non-farm production
risk
efficiency
JEL: 
J24
J43
O13
Q12
R23
Document Type: 
Working Paper

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