Estimating labor supply of farm households under nonseparability: empirical evidence from Nepal

This paper examines the labor supply of farm households in Nepal using a re cently developed methodology that accounts for the simultaneity between pro duction and consumption decisions of the households. Estimates of marginal products of male and female labor or shadow wages are obtained from an agri cultural production function. An instrumental variable approach is then use d to recover the household's structural labor supply from variations in the shadow wages and income, as well as other household characteristics. The f indings reveal that both male and female total labor supply are sensitive t o changes in shadow wages and income. Human capital embodied in education i s found to exert a significant positive effect on output, but has no statis tically significant impact on total labor supply of individuals. The result s also rejects the existence of efficient labor markets in rural Nepal. (C) 2000 Elsevier Science B.V. All rights reserved.