Module 1100
Household Behaviour: Theory and Applications

Instructors

Prof. Dr. Michael Grings
Martin-Luther-Universität Halle-Wittenberg
Naturwissenschaftliche Fakultät III
Institut für Agrar- und Ernährungswissenschaften
Karl-Freiherr-von-Fritsch-Str. 4, 06120 Halle
e-mail: michael.grings@landw.uni-halle.de

Course description

The course addresses major dimensions of household behaviour from a microeconomic point of view with particular emphasis on specifics of agricultural households. In a first step the most important concepts for the analysis of household demand for consumer goods are discussed. Additional dimensions of household behaviour are labour supply and the production of agricultural goods, i.e. use of inputs and production of farm output. These are considered in a second step, in such detail as required for the discussion of models of agricultural households.

The interaction of the consumption, labour supply, and agricultural production spheres is then analysed in the context of separable and non-separable household models. The most important aspects of household responses to economic signals are discussed in the framework of a theoretical model. For empirical applications of non-separable models with missing markets, where econometric estimation is difficult, simulation models can be used. In this case ensuring theoretical consistency of the models usually requires parameter calibration. The discussion of a model from the literature illustrates the approach.

The objective of the course is to deepen the understanding of major concepts of microeconomic theory which are relevant for the analysis of the behaviour of rural households in developing and transition countries. The presentation uses graphical and algebraic approaches and numerical examples.

Course outline

1. Introduction
1. Overview of the course
2. The role of theory and models in scientific research
2. Fundamentals: household demand and supply
1. Theory of household demand and labour supply
1. Basic concepts
2. Dual representations of preferences
3. Labour supply
2. Agricultural production, supply and factor demand
1. Basic concepts
2. Profit functions and quasi-rent functions
3. Agricultural household models
1. The theory of the agricultural household: Overview
2. Separability of production, consumption and labour supply decisions
3. Non-separability due to missing markets
4. An example of a non-separable agricultural household model
5. Some aspects of model calibration in the non-separable case

Teaching methods
The course will be held in a hybrid format: Apart from physical presence online participation will be possible. The details for online access will be sent to the registered participants timely before the course. Physical presence is recommended.
Lectures (70 %), classroom exercises (30 %)
Language: English

Requirements
Participants should have a good knowledge of the basic concepts of the microeconomic theory of the household and the firm.

Grading
For a certificate of successful participation the solution of problems (homework after the course) is required.
Credit points: 3 CP

Literature

• Chapters 2, 3 and 6 of Sadoulet, E., and A. de Janvry (1995): Quantitative Development Analysis, Baltimore and London, can serve as an introduction to the most important topics of the course. The manuscript of the book is available at http://areweb.berkeley.edu/~sadoulet/papers/Sadoulet_deJanvry%20QDPA.zip
• de Janvry, A., M. Fafchamps and E. Sadoulet (1991): Peasant Household Behaviour with Missing Markets: Some Paradoxes Explained. The Economic Journal, 101, 1400–1417.
• Sonoda, T. (2004). “Internal Instability" of Peasant Households: A Further Analysis of the de Janvry, Fafchamps, and Sadoulet Model. The Japanese Journal of Rural Economics, 6, 1-12. doi:10.18480/jjre.6.1

Selected additional literature

• Deaton, A., and J. Muellbauer (1980): Economics and consumer behavior, Cambridge etc.
• Chambers, R. G. (1988): Applied production analysis. A dual approach. Cambridge etc.
• de Janvry, A, and E. Sadoulet (2006): Progress in the modeling of rural households’ behavior under market failures. In: de Janvry, A., and R. Kanbur, eds.: Poverty, inequality and development: Essays in Honor of Erik Thorbecke. Vol. 1. Springer, 155-181. Available at https://are.berkeley.edu/~esadoulet/papers/HH-Thorbecke.pdf
• Chapter 22 (The economics of farm households) in: de Janvry, A., and E. Sadoulet (2015): Development economics: Theory and practice. London: Routledge.