existence of equilibrium and comparative statics in differentiated goods cournot oligopolies abstract we show that under horizontal differentiation pure symmetric cournot equilibria exist if firms react to a rise in competitors output in such a way that their market price does not rise this condition is related to strategic complementarity but not to convexity or differentiability we rule out multiple equilibria under some additional conditions and discuss stability and regularity of equilibria with ordinal methods following entry equilibrium price decreases only if competitors outputs enter inverse demand aggregated into a single number otherwise it may increase even in stable equilibria the comparative statics of quantities and profits for all equilibria are given

do women owned businesses have equal access to angel capital abstract women owned businesses are the fastest growing sector of new venture ownership in the united states although women s access to and use of debt and venture capital financing have been explored comparatively little is known about women s access to capital from private equity investors in this paper we examine the equality of women s access to angel capital the research suggests that women seek angel financing at rates substantially lower than that of men but have an equal probability of receiving investment we also document that women are more likely to seek and to a lesser extent receive financing from women angels

reward based crowdfunding of entrepreneurial projects the effect of local altruism and localized social capital on proponents success despite the omnipresent reach of the internet evidence exists that geography matters in crowdfunding this paper shows that some salient characteristics of the geographical area in which entrepreneurs reside affect the success of the crowdfunding projects they propose specifically we theoretically discuss and empirically document that the altruism of people residing in the area i e local altruism increases the likelihood of success moreover the strength of this effect depends on the level of social capital in the area i e localized social capital building on the extant literature we claim that localized social capital has two main dimensions the social relations among residents and their compliance with social norms using a dataset of 618 proponents that launched 457 crowdfunding projects on 13 italian reward based platforms we find that social relations magnify the effect of local altruism conversely compliance with social norms does not have any moderating effect

the role of informal capital on new venture formation and growth in china this study examines the nature and role of informal capital used by micro firms in the dynamic emerging market of china using a unique source of data for 260 urban entrepreneurs this study provides empirical evidence that entrepreneurs personal savings and family funding are important sources of start up capital however household income was found to be the most important funding source in driving firm growth over time this research directly addresses the lacuna of studies on entrepreneurship in emerging economies and contributes to our understanding of the critical role informal capital plays in the chinese entrepreneurial process overall findings suggest that informal capital is still predominantly used over formal capital sources for financing firm start up underscoring the slow transition in china from an emerging to a modern economy

are high growth firms one hit wonders evidence from sweden most firms do not grow and a small number of high growth firms seem to create most new jobs these firms have therefore received increasing attention among policymakers the question is whether high growth tends to persist we investigate this question using firm level data from sweden during 1997 2008 we find that high growth firms had declining growth rates in the previous 3 year period and their probability of repeating high growth rates was very low thus these are essentially one hit wonders and it is doubtful whether policymakers can improve economic outcomes by targeting them

strategy and the board of directors in venture capital backed firms abstract the results of this research demonstrate that boards of directors in venture capital backed companies are more involved in both strategy formation and evaluation than are boards where members do not have large ownership stakes these same results are demonstrated even when industry board size level of diversification and insider board representation are held constant agency theory and institutional theory are advanced as reasons for this higher level of involvement venture capitalists are generally seen as value added investors who have played a significant role in the development of many entrepreneurial businesses bygrave and timmons 1992 this success has lead students of industrial competitiveness like thurow 1992 to argue that the venture capitalist should serve as an example for directors of all types of organizations one of the most significant value added activities of the venture capitalist is involvement with strategy fried and hisrich 1995 macmillan kulow and khoylian 1988 sapienza 1989 sapienza et al 1996 rosenstein bruno bygrave and taylor 1993 implicit in the writings extolling directors who act like venture capitalists porter 1992a porter 1992b bhide 1994 thurow 1992 is the belief that they will be more active than traditional board members however little empirical work has been done to directly compare the level of strategic involvement of the two types of boards building on the work of judge and zeithaml 1992 this study compares the level of board involvement with strategy by the boards of venture capital backed companies with the boards of other types of organizations after establishing different levels of involvement it then examines why there is a difference finally this study provides additional empirical evidence on the relationship between board involvement and performance zahra and pearce 1989

u s evidence on linear feedback from money growth shocks to relative price changes 1954 to 1979 evidence is provided on the allocative effects of monetary policy by estimating the extent to which money growth shocks affected individual relative prices from 1954 to 1979 building on geweke s 1982 feedback measure the paper presents estimates of monetary feedback decomposed by frequency to allow monetary policy s short run effects to differ from its longer run effects the results suggest that monetary feedback from 1954 to 1970 differs from the latter period in both magnitude and patterns across frequencies the 1970s data suggest monetary variation had a greater overall effect and this effect was more concentrated at lower frequencies

relative price variability inflation and the allocative efficiency of the price system abstract this paper develops a theory of the relationship between aggregate and relative price variability based on the inability of people even in a rational world to identify permanent changes in relative demands whether caused by real or by monetary variability and relative productivities as soon as they occur the theory implies that the variance of the rate of inflation and the variance of relative price change are positively related although expectations are rational and markets always clear production decisions respond sluggishly to changes in relative prices temporary shocks to relative demands cause prolonged changes in the structure of production available information is used so as to maximize the efficiency of the price system however this efficiency decreases when any of the underlying variances increases this decrease is more pronounced when the production lag is longer

computing cournot nash equilibria this paper examines convergence criteria of an algorithm for the computation of cournot nash economic equilibria the method is based on formulating the equilibrium problem as that of finding a solution to a nonlinear complementarity problem solved by sequential linearization and lemke s algorithm conditions for local and global convergence are developed and the technique is applied to homogeneous segmented and differentiated product markets

the relationship between relative prices and the general price level it is very nearly a truismi amaong neoclassical economists that the public is wont to confuse changes in the general price level with relative price changes correspondingl y one might speak of the independence between the two as one of the central postulates of the neoclassical tradition william stanley jevons was aml ong the first to identify this basic dichotomin economic life as well as to attempt to explain the ordinary citizen s seenming incapacity to understand it

on low frequency estimates of long run relationships in macroeconomics abstract a number of recent studies have attempted to test propositions concerning long run economic relationships by means of frequency domain time series techniques that concentrate attention on low frequency comovements of variables the present paper emphasizes that many of these propositions involve expectational relationships that are not inherently related to specific frequencies or periodicities thus the association of low frequency time series test statistics with long run economic propositions is not generally warranted that such an association can be misleading is demonstrated by analysis of examples taken from notable papers by geweke lucas and summers

small businesses and liquidity constraints in financing business investment evidence from shanghai s manufacturing sector abstract when firms experience financial hierarchy external finance if at all available is substantially more expensive than internal finance factors such as transaction costs agency problem and asymmetric information have created such a hierarchy stiglitz and weiss 1981 argue that asymmetric information between firms and potential suppliers of external finance creates adverse selection and moral hazard problems in the credit market in developed market economies this problem of a higher cost of external finance is commonly thought to be more serious for small firms because they are more disadvantaged than their larger counterparts in accessing external finance due to several factors 1 public information on small firms is generally not available and leads to the even greater problem of asymmetric information i e more severe adverse selection and moral hazard problems these information problems have excluded small firms from bond and share markets 2 due to the lack of available means of external finance small firms rely more heavily on bank loans than their larger counterparts in addition as small firms are more interested in cultivating stable relationships with a few banks in order to secure a stable supply of credit these banks become virtual monopolies by lending to small businesses and exercise their market power in lending to small firms most of existing research considers only small firms in market economies little research has been done to understand the relationship between firm size and investment financing in any economy in transition this paper makes a contribution to the literature by studying the relationship between firm size and liquidity constraints by using a firm level data of manufacturing enterprises in shanghai during the period of 1989 1992 we consider whether small manufacturing firms in shanghai are constrained by the availability of liquidity compared with their larger counterparts when they are financing their fixed investment in a transforming economy such as china or other similar transition economies external finance relies heavily on loans from banks that are fully owned by the state due to historical reasons allocations of credit are always biased in favor of state owned enterprises such a lending bias imposes an extra cost on small chinese enterprises in financing investment as the majority of them are not state owned in such an environment our empirical results show that small manufacturing firms in shanghai are actually less liquidity constrained than their larger counterparts in financing their fixed investment this surprising result is rather different from what people normally predict based on the experience in market economies we suggest three possible explanations for this peculiar finding 1 the composition of various firm size classes plays an important role in explaining the result non state enterprises which are fast growing and efficient dominate the small firm classes their successes in the markets helps them to generate enough internal funds to smooth their investment over time 2 the presence of heavy indebtedness of large state owned enterprises may deprive them of sufficient cash available for investment decision given that state owned enterprises have been making heavy losses the central and regional governments have a liquidity problem in satisfying their huge liquidity demands 3 small enterprises in non state sectors can rely on the informal credit market to obtain funds for investment although they are excluded from the state banking system however the further trade liberalization in terms of eliminating tariffs and quotas caused by china s bid of joining the wto will erode the profits of these small enterprises as imported goods will be supplied at lower prices in addition further reforms in financial sectors may also affect the supply of external finance to small enterprises in nonstate sectors the consequence may lead to a tight liquidity constraint for small enterprises in china

atheoretical macroeconometrics a critique abstract the spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the cowles commission this development which we call atheoretical macroeconometrics is summarized and evaluated in the current paper it is contrasted with an updated version of the cowles commission approach we conclude that while some of the exercises of atheoretical macroeconometrics are valid those that have attracted the most attention and appear the most innovative exogeneity testing impulse response analysis and policy analysis using estimated vector autoregressions are based on incorrect analysis

the internationalization of venture capital abstract u ntil a few years ago venture capital was as american as apple pie w e had the money the entrepreneurial tradition the over the counter market and the tax structure to make venture capital practically an american monopoly today venture capital is increasingly a conduit for the flow of capital and ideas on a global basis in 1987 according to the european venture capital association more money was raised for venture capital in europe than in the united states 5 1 billion versus 4 9 billion though activity is greatest in france and the united kingdom there are now venture capital associations throughout western europe japan has venture capital firms and even china has started to think of ways risk capital can help solve its development problems

disadvantageous syndicates and stable cartels the case of the nucleolus abstract this paper considers a bilateral market with two complementary commodities and gives a rationale for aumann s paradox the relationship between the notion of strong stability of a syndicate i e the property that no group of players wants to exit or to enter the syndicate and the notion of disadvantageous syndicates is summarized in two results if the two sides of the market are balanced in terms of endowments every syndicate is strongly stable if the two sides of the market are not balanced in terms of endowments then being advantageous in aumann s definition is necessary and sufficient for a syndicate to be strongly stable

the neutrality properties of competing relative price models tests using linear feedback this article uses a variant of geweke s 1982 linear feedback measure to test common characterizations of monetary neutrality implicit in classes of relative price models the neutrality properties are defined in terms of relative price changes response to monetary policy shocks in a system including average price changes an interest rate and industrial production growth the magnitude and patterns of monetary feedback found in u s relative price data provide no support for any of the structurally neutral models

contributions to cournot oligopoly theory abstract this work contributes to a number of questions concerning oligopoly models in particular uniqueness of the cournot equilibrium point is demonstrated under the assumption that either the unit price function is differentiable and the derivative is strictly negative or the cost functions are strictly convex also under the assumption of either strictly decreasing unit price function or strictly convex cost functions it is shown that a the total production level at equilibrium increases with entry of additional players b that cooperation between some of the players necessarily entails profit for the others and c cooperative grouping causes decrease in production levels

feedback between wholesale and consumer price inflation a reexamination of the evidence this paper reevaluates the theoretical and empirical debate surrounding the bivariate time series relationship between wholesale and consumer price inflation empirical work by engle 3 guthrie 7 and silver and wallace s w 9 is based on a one sided distributed lag model running from wholesale prices to consumer prices colclough and lange c l 1 and granger robins and engle gr e 6 criticize this specification arguing that it contradicts the standard theory of derived demand whereby changes in demand for final goods cause changes in demand for primary goods s w s finding that consumer prices fail to granger cause wholesale price appears to c l and gr e to reject flexible price demand led models in favor of cost push markup models of consumer price inflation in this paper we demonstrate that the patterns of feedback in u s data are consistent with standard flexible price models of derived demand with strong aggregate demand elements first using geweke s 4 linear feedback methodology we confirm the general pattern of feedback found in previous studies the incremental predictive content of wholesale prices for consumer prices is approximately twice that of consumer prices for wholesale prices however half of the feedback between the two series is purely contemporaneous we find this pattern to be robust in a larger system that includes money as a proxy for aggregate demand the large contemporaneous feedback implies that any structural inferences will rely heavily on maintained assumptions concerning the contemporaneous error structure in section iii we present a stylized model of price determination in an economy with two stages of production supply disturbances in the primary goods market affect wholesale prices and with a lag consumer prices thus the model predicts feedback from wholesale to consumer prices whenever supply disturbances are present the key insight from the model is that the converse does not hold in the presence of demand disturbances the demand for primary goods depends not on current or past retail demand but on expected future demand even with

the effects of irreversible investment in durable capacity on the incentive for horizontal merger until recently the literature on horizontal merger had been almost exclusively concerned with two issues the first issue which has long historical roots is the timing of merger activity of particular interest has been to understand the causes of the great merger wave lamoreaux 5 represents the most recent addition to this literature and provides a very good review of past work the second issue is the welfare implications of horizontal merger of which williamson 12 is a case in point with the exception of stigler 8 what had generally not been at issue in this literature was the private incentives for horizontal merger this was true in spite of the insight provided by stigler that the non participants of a merger are typically made better off by a merger than are the participants since the firms which engage in merger reduce supply all firms benefit from the resulting higher price but the non merging firms benefit most because they receive a higher price without having had to reduce supply there is then the potential for a free rider effect in merger activity as each firm wishes it to be the other firms which merge the first suggestion that the private incentives for horizontal merger may not only be weak but that merger may be simply unprofitable arose in a numerical example by szidarovszky and yakowitz 9 in which they show in a three firm cournot model that a merger between two firms is unprofitable then a study by salant switzer and reynolds 7 hereafter s s r examined this issue in considerable detail and found very weak incentives for firms to merge together unless there are considerable savings in terms of fixed costs using the standard linear cournot model s s r show that only merger for monopoly or close to monopoly is privately optimal when there are zero fixed costs the basis for this surprising result is that when the merged firm reduces output below the combined level of its pre merger supply the non merged firms react by expanding output though price goes up in response to the merger the market share of the merged firm declines the latter effect can dominate so that the firms are made worse off by merging in response to this result perry and porter 6 argue that the standard cournot model is inappropriate for analyzing the incentive to merge as mergers are not well defined since firms do

n firm oligopolies with production adjustment costs best responses and equilibrium abstract n firm single product oligopolies will be examined without product differentiation and with production adjustment costs the best response functions of the firms will be first determined in terms of the outputs of the rest of the industry and the firm s own outputs of the previous time period this function is always decreasing not necessarily continuous and might have two different values then the best response will be determined when the output of the rest of the industry is replaced by the output of the entire industry we will show that this function might have infinitely many values leading to infinitely many equilibria a complete description of the equilibrium set will also be given the theoretical findings will be illustrated with the case of linear price and linear cost functions

the stability of the cournot oligopoly model a reassessment abstract the stability properties of the cournot oligopoly model are examined for the continuous adjustment process sufficient conditions for instability are established which are shown to be of significance when the number of firms n is small local and global stability are shown under appropriate conditions which for global stability include the restriction n 5 the proof of global stability corrects a well known proof by f hahn rev econ stud 29 1962 329 331 results for the discrete time adjustment process are reported and the restrictiveness of the model s assumptions are discussed

an institutional view of china s venture capital industry explaining the differences between china and the west abstract institutional theory argues that institutions in general and culture in particular shape the actions of firms and individuals in a number of subtle but substantive ways the theory has been used to explain a number of significant and substantive managerial differences found in different parts of the world to date the examination of venture capital outside the us and europe however has been rather limited institutional theory also suggests that there would be differences in how venture capital may operate in other parts of the world such as asia where the culture is substantially different from the west based on interviews with 36 venture capitalists in 24 venture capital firms investing in china this exploratory research finds that china s institutional environment creates a number of significant differences from the west the article discusses the impact of these findings on future research on asian venture capital theory development and the activities of venture capital professionals in that region

a mathematical programming approach to a nash cournot equilibrium analysis for atwo stage network of oligopolies this paper deals with the existence characterization and computation of equilibrium solutions arising from related mathematical programming problems associated with a particular market structure the generic structure analyzed herein represents a two stage production process in which a set of some firms produces a semifinished product that serves as an input to another set of firms which converts this to a final good in addition there exists a third set of vertically integrated firms these firms perform the operations jointly performed by the other two sets of firms in producing the final product on the demand side an econometrically derived demand curve is specified for the final product the aim of this paper is to characterize the nature of the equilibrium solutions for such problems under various market behavioral structures derive sufficient conditions under which one can claim the existence of these equilibrium solutions and prescribe methods for computing equilibrium solutions the analysis provides a machinery for considering the effects of mergers and integrations on a firms profits and on industry outputs and prices thereby suggesting incentives or otherwise to merge or integrate

voluntary export restraints and strategic technology transfers abstract this paper investigates the effects of voluntary export restraints vers in the presence of potential entrants and technology transfers it builds a model of a licensing game in a cournot oligopoly market and examines conditions under which vers induce restrained foreign firms to transfer technologies to potential suppliers i show that a ver can decrease the profit and output of the domestic incumbent by perturbing the no licensing equilibrium reached under free trade and inducing the market to move to a licensing equilibrium

reliance upon informants in the venture capital industry abstract can venture capital investors rely upon informants to be forthcoming with what they know or do they need to be concerned about self serving conduct these questions are investigated among two types of venture capital investors business angels and venture capital firms the results of the present study suggest that the more either type of investor is concerned with market or agency risk the less likely he or she will be to use informal network informants business associates and friends market risk is due to unforeseen competitive circumstances whereas agency risk results from the separate and possibly divergent interests of investors and their informants investors with a higher concern for risk consult formal network informants venture capital firm investors for information about market risk but concern with agency risk is not related to the frequency of use of venture capital firm sources agency risk deals with particular self interested individuals who are unlikely to be known to the formal informant network venture capital firm investors consult formal network sources more frequently than do business angels compared to business angels they enjoy a much more efficient flow of information from their informants as they gain more experience exchanging information venture capital firm investors increase their reliance upon formal network informants because informal network informants have less experience exchanging information it is possible that some informal sources could escape being detected if they decided to act in a devious self interested manner rather than relying upon informal informants several investors indicated in face to face interviews that they prefer to perform their own due diligence business angels seem to distinguish between two types of informants close associates with whom they have had extensive investment experience and mere acquaintances to whom they are only weakly tied by a referral from a close associate or someone else it is quite likely that business angels rely upon informants who are close associates however the informants in this study were predominantly acquaintances which may be fairly typical of most business angel informants because they were acquaintances and not close associates they were not utilized much as informants venture capital firm investors rely heavily upon associates at other venture capital firms for market information because they do not trust other informants to the same extent they may wish to de emphasize their reliance upon them similarly there are indications that business angels rely upon close associates to provide them with information about agency factors because angels do not trust others for this information and may in fact have limited access to other informants they may wish to focus their search for information on business associates this would enable them to avoid the expense of investigating the reliability of other informants this research should be helpful to entrepreneurs who are searching for new venture funding it suggests that certain types of informants may be more effective in championing the prospects of a deal to a venture capitalist an entrepreneur with a technical or market advantage ought to approach a venture capital firm because the informant network for venture capital firms is highly interconnected with other venture capital firms it is likely that presenting a request for funding to one of them will quickly result in the sharing of it among their informant associates if entrepreneurs possess a market advantage they ought to concentrate on obtaining funding from the first venture capital firm investor who reviews the deal entrepreneurs who can argue that they are trustworthy or competent even if they lack a technical or market advantage ought to present their deals to a business angel using a close business associate as an intermediary a mere acquaintance used as an intermediary would be much less effective although statistical testing indicated that such an approach would not generate significant success interviews with business angels suggested that using a close associate as an intermediary would improve an entrepreneur s prospects especially if the business angel were relatively unconcerned about a deal s risk moreover using an informant intermediary to contact a business angel would avoid the need to do an initial background check on the entrepreneur

does firm size matter evidence on the impact of liquidity constraints on firm investment behavior in germany abstract this paper examines the link between liquidity constraints and investment behavior for german firms of different sizes from 1970 to 1986 results indicate that medium sized firms appear to be more liquidity constrained in their investment behavior than either the smallest or largest firms in the study suggesting that the unique german infrastructure designed to assist the small firm has indeed succeeded in alleviating to some degree such liquidity constraints findings also support the hypothesis that the emerging competition and internationalism which characterized the german financial markets in the 1980s have been improving access to capital for some groups of firms

strategic investments with spillovers vertical integration and foreclosure in the broadband access market abstract we analyse competition between two retailers of broadband access when they differ in their ability to offer value added services one retailer is vertically integrated and controls the input market for local access this firm invests to increase the input quality upgrading to broadband before an access price regulation is set we first show that access price regulation may lower consumer surplus and welfare if retailers do not differ too much second if the integrated firm s ability to offer value added services is much higher than that of the rival the integrated firm uses overinvestment as an alternative foreclosure tool

venture capital and management led leveraged buy outs a european perspective abstract management and leveraged buy outs became phenomena of the 1980s from beginnings in the u s they quickly traversed the atlantic spreading first to the u k and then throughout europe the venture capital industry has played a crucial role in the development of buy outs in europe particularly in smaller deals in the u k the netherlands and france this paper examines three aspects of the market for venture and development capital funded management led buy outs in europe it provides a framework for analysis of the different levels of development of each country s market it examines performance of u k buy outs and addresses the extent and nature of exits throughout the paper use is made of the extensive database of european buy outs developed by the authors the main conclusions to emerge are as follows european experience can not be compared to that in the u s as a single economy there are important differences between european countries in respect of the level of buy out activity and the extent to which conditions are or will be favourable for the development of such transactions conceptually a buy out market may be considered as requiring three main factors to be present if it is to develop the generation of buy out opportunities the infrastructure to complete a transaction and opportunities for the investors in a buy out to realise their gains these broad groups may be further sub divided the generation of opportunities will be heavily influenced by attitudes to entrepreneurial risk and hence willingness of managers to buy the ownership structure of industry and hence the generation of entities which are for sale and the state of development of mergers and acquisition markets the infrastructure to complete transactions includes sources of funding both in respect of venture capital availability and the ability of banks to fund transactions the nature of legal and taxation regimes and the existence of intermediaries and advisors who can both identify and negotiate buy outs the existence of suitable exit routes comprises stock market flotation sale to another group and recapitalisation possibly through a secondary buy out many of these factors are similar to the conditions necessary for venture capital deals to develop the generation of entities for sale may take various forms with succession issues in family firms divestment of unwanted divisions privatization of public sector activities and going privates of companies quoted on a stock market being the most important this framework was used to analyze european buy out markets through a combination of interview and desk research the evidence shows that the most highly developed buy out markets and those with the greatest short term potential are not necessarily to be found in the largest economies u s investors who turn towards europe to develop their markets at a time when the u s buy out market is experiencing a downturn and european investors seeking to broaden their activities need to be aware of these differences as in comparable studies in the u s u k lbos on the evidence from our survey of 182 buyouts on average produce performance improvements u k lbos appear to undertake a greater level of new product development and asset purchase after buy out than do their counterparts in the u s and have placed less emphasis on asset disposals than u s lbos managers buying out frequently tightened up their control of working capital the results of our survey indicate support for both the entrepreneurial and agency cost reduction perspectives about buy outs with the former perhaps being somewhat more in evidence exit routes are an important aspect of the buy out market but evidence presented here indicates that buy outs are unlikely to exit in the way in which they originally envisaged in particular buy outs that initially were aiming for flotation on a secondary tier stock market have almost invariably been sold to third parties

money and price dispersion in the united states this paper reports an empirical test of a price dispersion equation using data on the u s after world war ii the equation derived elsewhere from a version of the partial informationlocalized market models relates price dispersion to the magnitude of the aggregate shocks in order to test the model a price dispersion series is computed using annual wholesale price indexes and weights for the period 1948 76 the data on money shocks are the unanticipated money growth series estimated by barro the tests also include a measure of aggregate real disturbances from the theoretical point of view the results are negative they do not detect an effect of money shocks on price dispersion but support the predicted effect of real shocks

a model of an agricultural household in a multi crop economy the case of korea it is the purpose of this paper to describe one method of extending the empirical applicability of the theory of the farm household to multi crop economies by integrating the econometric and linear programming models already available in the literature section i introduces the subject in section ii the theoretical model is presented in section iii korean data are used to assess the quantitative significance of the approach by calculating and comparing household response to changes in input and output prices for two different specifications of the models first the household is analyzed from the consumption side on the assumption that farm profits are exogenous this corresponds to the standard approach in consumer demand theory and second results are presented for a model in which consumption and production responses are integrated in a theoretically consistent fashion and farm profits are allowed to reflect production responses to price changes the results from this and other studies that use an integrated approach to production and consumption decisions highlight the need to change perceptions concerning agricultural household response to economic incentives in developing countries and to revise the design of economic projects and policies accordingly