Probabilistic Modelling of the Joint Labour Decisions of Husband and Wife in Farm Households

When working with micro data one sometimes encounters situations involving qualitative choices in addition to the continuous choices that are the traditional focus of empirical analysis. One such situation arises when we study the increase in multiple job-holdings among farm operators in western economies. In these analyses we are both interested in the qualitative choice of entering the off-farm labour market and the continuous choice of determining labour supply in all occupations. This paper presents a unified framework for formulating such a discrete/continuous choices that include randomness within the decision-making process. We consider the joint labour decisions of operator and spouse through an agricultural household model that combines the agricultural production, consumption, and labour supply decisions in a single framework. We develop a probabilistic decision rule for participating in off farm work and derive the demand functions in farm production and labour supply functions in off-farm sector.