ABSTRACT
This chapter explores the theoretical and empirical footing for analysis of Chinese farm households’ supply behaviour. It focuses focus on a price response mechanism in which farm production and explores the development of external linkages with the non-farm labour market. In the standard neoclassical theory, producers are assumed to be profit maximisers and price-takers under a perfectly competitive market. In contrast to conventional profit maximisation theory, subjective utility theory, first formulated by Chayanov in the 1920s, takes demographic change in family structure into account using a peasant farm household model. Subjective utility maximisation is concerned with a farm family’s two opposing objectives: an income objective required to meet the consumption needs of the household; a work-avoidance objective which may conflict with the first objective. The chapter argues that it is possible to use aggregate analysis for assessing the impact of own-consumption and off-farm income on marketable surplus supply in China. It discusses alternative theoretical frameworks and also discusses empirical approaches.
