An Ordered Tobit Model of Market Participation: Evidence from Kenya and Ethiopia

Abstract

Do rural households in developing countries make market participation and volume decisions simultaneously or sequentially? This article develops a two‐stage econometric method to test between these two competing hypotheses regarding household‐level marketing behavior. The first stage models the household's choice of whether to be a net buyer, autarkic, or a net seller in the market. The second stage models the quantity bought (sold) for net buyers (sellers) based on observable household characteristics. Using household data from Kenyan and Ethiopian livestock markets, we find evidence in favor of sequential decision making, the welfare implications of which we discuss.

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