Should farmers farm more? Comparing marginal products within Malawian households

Abstract

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The importance of specification choices when analyzing sectoral productivity gaps

“…We present these results in Table 6. These results are related to, and somewhat replicate, tests for efficiency in Brummund and Merfeld (2021). While farm MRPL is higher using both production functions for this subgroup of households, the overall effect of using a translog or Cobb‐Douglas specification is similar.…”

“…We rely on household fixed effects for identification. In a related article, using a similar identification strategy, we argue that endogeneity of input choices is unlikely to explain the differences we observe between farm and nonfarm productivity Brummund and Merfeld (2021). 2 Importantly, any endogeneity affecting our MRPL estimates can also affect the ARPL estimates.…”

“…Here, we take a simple median across plots/enterprises. An alternative option, weighting MRPL across plots/enterprises by labor allocation, does not affect conclusions (Brummund & Merfeld, 2021). To construct standard errors for MRPLs and differences, we bootstrap the entire process 1000 times.…”

“…In nonfarm production, on the other hand, most households operate just a single enterprise in any given wave. This could make aggregation an important consideration, as just discussed, but in practice the method of aggregation of MRPLs to the household level has no effect on qualitative results, as shown in Brummund and Merfeld (2021).…”

“…Herrendorf and Schoellman (2018), for example, use wages to consider productivity differences. However, the wage is not an appropriate measure of marginal productivity when markets are incomplete—which previous literature finds to be the case for Malawi (Dillon et al., 2019) as well as in developing countries more generally (for example, Merfeld (2021))—or when households make labor allocation decisions under risk (Brummund & Merfeld, 2021). However, one advantage of wages is that they also include employment in larger firms and outside of the household more generally, employment which we do not capture in this article.…”