Farmers' Subjective Valuation of Subsistence Crops: The Case of Traditional Maize in Mexico [Dissertation

Abstract

[PhD Dissertation] Subsistence farmers may not respond to market incentives if their resource allocation decisions are based on shadow prices. This may seem puzzling from an economic point of view if shadow prices are not taken into account. Subsistence maize farmers in rural Mexico are an example with their non-response to decreasing maize prices after NAFTA. Previous research suggests that the market price may fail to represent incentives if farmers' crops have non-market values. I explore subjective valuation of subsistence crops in the context of traditional maize in Mexico - the center of domestication and diversity of maize. I show how these values affect farmer behaviour and the design of on-farm conservation programs. My theoretical contribution extends the basic agricultural household model by combining transaction costs and an asymmetric missing market for subsistence crop. This missing market arises from the fact that the market-purchased crops lack the non-market values attached to farmer's own crop, hence are imperfect substitutes for it. This model explains why some farmers may allocate resources in ways that cannot be explained by market prices even in the absence of transaction costs. Shadow prices predict farmers' resource allocation better than market prices and represent incentives to maintain subsistence crops. Using nationally-representative data, I estimate production functions and shadow prices. I conclude that the value of traditional maize to subsistence farmers is significantly higher than market prices for maize. The same is not true for modern maize. I identify key farm- and farmer-specific factors correlated with shadow prices of traditional maize. Use of irrigation and producing on land with high-quality soil are negatively correlated with shadow prices; male-headed households and those of indigenous origin have above-average shadow prices for traditional maize. The latter correlation is especially true in southern and southeastern Mexico indicating high (de facto) incentives to maintain traditional maize in these regions. On-farm conservation programs would be more effective if targeted to communities with high shadow prices. The method I use is flexible enough to be applied to guide conservation programs for other crops in other regions