| dc.description.abstract | In this study, of farmer behavior in Kenya we shall attempt to answer—the-following questions: What effect does risk have on farmer behavior? Are farmers efficient in their allocation of scarce resources? What are the bottlenecks' that limit agricultural production? Lastly how responsive are farmers to changes in the price vector? In order to examine these questions, we present a neoclassical model of farmer behavior under conditions of uncertainty i.e. we assume that rather than maximize income, farmers seek to maximize expected utility. By postulating that the distribution of the random variable income, is normal, we show that maximizing expected utility is equivalent to maximizing a modified utility function, the arguments of which are expected return and the standard deviation of income. Such a formulation leads to somewhat different conclusions with-respect to economic efficiency than does the familiar profitmiximizing approach. In particular, we show that a farmer will equate the marginal utilities of input use into each of his crops with respect to a given input, rather than equating the marginal value products. Thus, for example, the marginal value product of labor in coffee production would be higher than the marginal value product of labor in cotton production. If the marginal increment to risk off producing coffee is higher than the marginal increment to risk of producing cotton. The data set which we shall use in estimating this neoclassical model is derived from a survey (conducted by the Kenyan Government) of 1500 farms throughout. Kenya. The survey consists of monthly visits to each farm, as well as the collection of data- at the beginning and end of the survey period. Among the data collected are all inputs, outputs, inventories, prices, capital values, etc. by-crop by farm. Despite, its defects, this data-set, both in terms of its inclusiveness and the breadth of its coverage, offers the economist a wealth of information-rarely to be found in a less developed country. This micro-level data set is used in the empirical half of this study to estimate Cobb-Douglas production functions for each of the eight enterprises surveyed—local maize, hybrid maize, coffee, cotton tea, pyrethrum, improved dairy, and unimproved dairy. The estimation technique used-was instrumental variables with prices and fixed inputs as the instruments. It was necessary to use such a technique in order to avoid the simultaneous-equations bias involved in an ordinary least squares approach. From these estimates, we were ready to provide answers, to the questions raised above. We found that while farmers were efficient in the allocation of resources they used they used too few inputs. This-indicates that one of the big bottlenecks in small-holder agriculture in Kenya is lack of credit. We also found that risk played a critical role in farmer decision-making, and that, consequently, the reduction of risk would have large payoffs- in terms of increased expected return. | |
