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The importance of accounting for unobserved heterogeneity, state-dependence and differences in residual variances across groups: An application to Irish Farmers land market participation decisions
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2010
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S. O'Neill and K. Hanrahan (2010) The importance of accounting for unobserved heterogeneity, state-dependence and differences in residual variances across groups: An application to Irish Farmers land market participation decisions. RERC Working Paper Series PUT 10-WP-RE-05
Abstract
Land is an essential input into agricultural production. A grwoing literature is
concerned with the factors influencing farmers’ land market participation decisions in
developing countries, with developed countries largely ignored. Current best-practise
in the land market participation literature is exemplified by Holden et al. (2007) who
use a dynamic model which allows for state-dependence and unobserved
heterogeneity. Much of the literature fails to adequately deal with these features of
land market decisions. In addition, a single model is used to represent all farm types.
In this paper, we firstly consider the factors influencing land market participation
decisions in a developing country, Ireland, while allowing for state-dependence,
unobserved heterogeneity and differences across farm tyes. We compare these results
to those that are obtained while ignoring state-dependence, unobserved heterogeneity
and differences between farm types. Our results suggest that some caution may be
warranted when these aspects are ignored when if fact they are present.