Kiel Working Papers, Kiel Institute for World Economics
No 1469:
Shadow vs. market prices in explaining land allocation: Subsistence maize cultivation in rural Mexico
Aslihan Arslan
Abstract: Economic models of land allocation may lead to
expectations for farmer response that “surprisingly" do not materialize, if
market prices fail to reflect the value of farmers' product. “Shadow
prices" rather than market prices explain resource allocation better for
farmers who attach significant non-market values to their own crops. I
extend the theoretical model in Arslan and Taylor (2008) to explain why the
land allocation of such farmers may not respond to market signals even if
transaction costs are not binding. I estimate the proportion of land
subsistence maize farmers allocate to traditional versus modern maize
varieties using nationally representative rural household data from Mexico
– the center of diversity of maize. I conclude that shadow prices explain
land allocation better than market prices and discuss the importance of
non-market values in understanding both farmers' supply response and
on-farm conservation of traditional crops with non-market values
Keywords: Land allocation, shadow prices, non-market values, traditional crops, on-farm, conservation, Mexico; (follow links to similar papers)
JEL-Codes: O12,; O13,; Q12,; Q39; (follow links to similar papers)
20 pages, December 2008
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