Rural Household Response to Shocks in Ethiopia. A Household Modelling Approach

Examination Thesis from the year 2016 in the subject Economics - Other, grade: 4.0/ EXCELLENT, , course: DEVELOPMENT ECONOMICS, language: English, abstract: This study assesses the response of rural households to output and input prices as well as technological changes in mixed crop production in Ethiopia, in case of Ada'a woreda selecting a sample size of 100 households using a non separable household modeling approach. Cobb Douglas function is used for the production and utility function and major constraints like land, labor, seed and fertilizer are considered in order to find the optimum values that would enable household maximize their utility. The most widely produced 7 crops in the village were selected. The optimal value exposes that mono cropping is better than multiple cropping to maximize utility. Output price, factor price and technology shocks were introduced in order to see how the households respond and how and to what extent that the production, consumption and welfare of households are changed. The finding of the study reveals that households tend to leave the agricultural sector if all input prices are increased by 10% and this is the case where the households face minimum welfare level. When output prices are increased by the same figure, farmers allocate all of their labor in the agricultural sector. A technological improvement by 20% on teff enables households to fully engage in agricultural activities and secure the highest utility compared to other ...