ABSTRACT
This chapter develops the econometric strategy for both detecting and incorporating potential labour heterogeneity in the production and labour supply component of the farm household model. The model estimation results, based on household survey data from the tarai region of Nepal, are presented in Chapters 6 and 7. In this chapter, Section 4.1 reviews the general estimation issues involved and briefly discusses alternative strategies. Section 4.2 outlines the sequential estimation strategy proposed by Jacoby (1993) for estimating non-recursive farm household models. Section 4.3 presents an adaptation of this methodology for estimating a farm household model with labour heterogeneity that is consistent with the structure of a farm household model with heterogeneous composite labour developed in Chapter 3. Section 4.4 contains a brief discussion of the required adjustments to the variance-covariance matrix of the parameters estimated in the second step of a sequential estimation strategy.
