Movers and stayers in the farming sector: Accounting for unobserved heterogeneity in structural change
Résumé
The Markov chain model (MCM) has become a popular tool in the agricultural economics literature to describe how farms experience structural change and to study the impact of various drivers of this process, including public support. Even though some studies have accounted for heterogeneity across farms by letting transition probabilities depend on covariates depicting farms/farmers' characteristics, only observed heterogeneity has been considered. Assuming that structural change may also relate to unobserved individual farms' characteristics, we applied a restricted mixed Markov chain model (M-MCM), namely the mover-stayer model (MSM), in the agricultural context to relax the assumption of homogeneity in the transition process which grounds the usual MCM. We consider a mixture of two types of farms, the 'stayers' who always remain in their initial size category, and the 'movers' who follow a rst-order Markovian process. An empirical application to a panel of commercial French farms over 2000-2013 shows that the MSM is a better modeling framework to recover the underlying transition probability matrix as well as to perform long-run farm size distribution forecasts.
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