Working Paper: CEPR ID: DP5392
Authors: Olivier Cadot; Laure Dutoit; Marcelo Olarreaga
Abstract: The main objective of this paper is to provide estimates of the cost of moving out of subsistence for Madagascar's farmers. The analysis is based on a simple asset-return model of occupational choice. Estimates suggest that the entry (sunk) cost associated with moving out of subsistence can be quite large somewhere between 124 and 153 percent of a subsistence farmer's annual production. Our results make it possible to identify farm characteristics likely to generate large gains if moved out of subsistence, yielding useful information for the targeting of trade-adjustment assistance programs.
Keywords: entry costs; Madagascar; subsistence; switching regression; threshold regression; unknown sample separation
JEL Codes: F10; O12; O19
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| sunk costs (G31) | transition from subsistence to market farming (P32) |
| individual characteristics (education, farm size) (Q12) | transition from subsistence to market farming (P32) |
| access to credit and transportation infrastructure (R42) | transition from subsistence to market farming (P32) |
| entry costs (L11) | persistence of poverty among subsistence farmers (Q12) |
| household characteristic z (D19) | occupational choice (subsistence vs market farming) (J43) |