ANALYZING LABOR HETEROGENEITY IN GHANAIAN COCOA PRODUCTION AND ITS IMPLICATIONS FOR SEPARABILITY IN HOUSEHOLD DECISIONS AND POLICY ASSESSMENT

Abstract

AbstractResearchers have employed farm household models (FHMs) for policy analysis under the separability assumption. However, separability can fail, and the household's production and consumption decisions become simultaneous. Using 5 years of household data, the separability assumption among Ghana's cocoa-producing households is tested via heterogeneity of household adult males and females, household children, and hired and exchange labor. Results show labor is heterogeneous, implying a lack of separability. Simulation analysis also shows that ignoring nonseparability leads to an underestimation of policy effects. Thus, nonseparability in production and consumption decisions must be incorporated in FHMs developed for Ghanaian cocoa-producing households.