Contents & Foreword, Characterizing And ... - IRRI books

The prices of inputs and outputs in the revenue equation depend upon the distanceof the land from the market. Prices of inputs increase at an increasing rate asfarms move farther away from markets. Similarly, the prices farms can obtain foroutput they sell are assumed to decrease at an increasing rate as the farm is moredistant from markets. There are two components to this distance—the distance betweenfarm plots and the homestead, and the distance between the homestead and thereference market(s). In the Mekong River Delta, transport of paddy and rice inputs islargely by boat. Settlement patterns in the area usually focus on canals—with homesteadsusually bordering a canal or river.We specify a functional relationship between the level of input applied to farmingand the amount of output produced by the farm. The level of output produceddepends upon input levels, agroclimatic conditions, and other fixed land characteristics.Using the production function and the expressions for net revenue associatedwith cultivation of each crop, we can derive relationships between the factors specifiedas determining net revenue and production, and the demand for inputs by thefarm. The demand for inputs for crop k cultivated at location i is a function of the costof the inputs, the farm-gate price of the output, the characteristics of the plot, and theefficiency of production of crop k on the plot. Next, using the expressions for inputdemand, production, and the effect of travel distances on revenues, we define anexpression for the net returns associated with cultivation of crop k on parcel i, whichincorporates the effects of travel cost and the production technology of the farm. Twotravel distances are considered in the model. D i is the distance between the homesteadand the farming plot or plots operated by the family, whereas T i is the average distancebetween the homestead and the input/output market(s) accessible to the farm.Both distances are relevant in the model since various inputs used in farming (e.g.,labor, fertilizer, seed, etc.) and the outputs produced are transported between homesteads,farm plots, and markets over the course of a production season. The resultingexpression establishes the hypothesis that the likelihood that a plot will be applied tocultivation of a particular crop and the intensity of use will fall as the distance betweenthe plot and the output/input market increases. At the extreme, very distantplots will not be cultivated, whereas plots closest to markets would be expected to beused for intensive commercial farming.We form an expression for net revenue from cultivation of crop k on plot iamenable to estimation from earlier equations:ln(R ik ) = a 0k + a 1k ln(D i ) + a 2k ln(T i ) + a 3k ln(z 1i ) + a 4k ln(z 2i )+ … + a Nk ln(z Li ) + u ik (2)If we add technical assumptions concerning the distribution of error terms (u ik ) andthe correlation of errors, the probability of any crop k being cultivated on plot i isdistributed according to the multinomial logit distribution. This provides the basis forusing the multinomial logit model in empirical tests of the model. If we can rank thealternative land uses—as is possible when the sample is limited to farms cultivating458 Edmonds and Kam