Estimating Labor Supply and Production Decisions of Self-Employed Producers

Abstract

This paper proposes a model oriented towards integrating farm households' production and consumption decisions into a unified theoretical and econometric framework. It is argued that, in contrast with other forms of economic organization, farm households' utility and profit maximization decisions are not likely to be independent.

Econometric estimation of a farm-household model using Canadian data suggests that utility and profit maximizing decisions are not indeed independent and, moreover, that there are significant gains in explanatory power and efficiency by estimating the consumption and production equations jointly.