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Abstract
This paper examines the labor supply of farm households in Nepal using a recently developed methodology that accounts
for the simultaneity between production and consumption decisions of the households. Estimates of marginal products of male
and female labor or shadow wages are obtained from an agricultural production function. An instrumental variable approach
is then used to recover the household's structural labor supply from variations in the shadow wages and income, as well as
other household characteristics. The findings reveal that both male and female total labor supply are sensitive to changes in
shadow wages and income. Human capital embodied in education is found to exert a significant positive effect on output, but
has no statistically significant impact on total labor supply of individuals. The results also rejects the existence of efficient
labor markets in rural Nepal. © 2000 Elsevier Science B.V. All rights reserved.