Bayesian Estimation of the Double Hurdle Model in the Presence of Fixed Costs

We present a model of market participation in which the presence of non-negligible fixed costs leads to random censoring of the traditional double-hurdle model. Fixed costs arise when household resources must be devoted a priori to the decision to participate in the market. These costs, usually of time, are manifested in non-negligible minimum-efficient supplies that require modification of the traditional Tobit regression. The costs also complicate econometric estimation of household behavior. These complications are overcome by application of the double-hurdle model. The model and procedures are demonstrated in an application to milk market participation in the Ethiopian highlands