Seasonality and Capital in Farm Household Models

A wide variety of farm household models have provided a valuable theoretical basis for empirical and conceptual analysis of interactions between production and consumption resource allocations of poor rural people. A weakness of common applications of many such models, and unfortunately of much analysis, is failure to also recognise and adequately describe the fundamental seasonal nature of most agricultural production and the effects of pervasive seasonal finance market failures on poor rural people’s behaviour and welfare. This is despite considerable theoretical work that uses such models to investigate (often limited) production impacts of formal financial services. A general model recognising this is presented, with graphical applications showing the potential importance of seasonal finance constraints on the behaviour and welfare of different farm households. Formal methods for investigating the effects of seasonal finance constraints on household behaviour and welfare should be standard tools used by applied rural development economists.