ABSTRACT
This chapter has two main objectives. The first part contains a brief discussion of several themes in the development economics literature which draws attention to the question of heterogeneity between family and hired labour. The main themes explored are labour market dualism and the celebrated inverse relationship between farm size and land productivity. The second part reviews the literature that is directly related to the tests of labour heterogeneity and the implications of heterogeneity for the analytical structure and estimation of a farm household model. This literature review has three sub-sections: (a) a summary of the previous specification and results from production function based tests of heterogeneity between family and hired labour; (b) a brief review of the labour supply estimation research work that is relevant from the perspective of labour heterogeneity; and (c) a review of the Nepal-specific farm household model estimation and other relevant studies related to the empirical analysis of this study.
