Farm-to-market transaction costs and specialisation in small-scale agriculture: Explorations with a non-separable household model

Using an integrated household model with endogenous transaction costs, this article illustrates how: even in the absence of risk the tension between gains from specialisation and corresponding increases in transaction costs may lead to enterprise diversification on small farms. A numerical example illustrates that this tension may contribute to the prevalence of inter-cropped cash-crops on small farms, in apparent disregard for foregone yield and income from greater specialisation involving pure-stands. By implication, measures that augment households' abilities to override trading costs may, be critical complements to efforts seeking to raise productivity, and incomes in small-scale agriculture via increased specialisation.