Local versus Global Separability in Agricultural Household Models: The Factor Price Equalization Effect of Land Transfer Rights.

Commonly employed global tests for separability between production and consumption decisions are theoretically inappropriate when the market failures creating non-separabilities differentially constrain some, but not all households. Simulated maximum likelihood estimates using Chinese panel data reject the restrictions implied by a global separability test in favor of regime-specific or local reparability tests. The estimates also show that a global approach to separability obscures the significant effect that less-encumbered land transfer rights would have on shadow factor price equalization across households and allocative efficiency. The findings on transfer rights suggest a resolution to the debate in China on further property rights reform. Copyright 2002 by American Agricultural Economics Association