15
Hypothesis 1: If an agent’s liquidity constraint is relaxed through program payments, then an agent
allocates more time to off-farm labor and less to on-farm labor.
Hypothesis 2: The more liquidity-constrained a household’s is prior to the program, the larger the effect
of program payments on off-farm labor.
IV. Identification Strategy
Based on the conceptual model and its assumptions, the reduced form of the off-farm
labor-supply equation for a liquidity-constrained household is given by
L* = f (Agg ; p, w,ω, δ, K, B, A, L τ ,T ,T, zc, zf, z° )
where - is off-farm labor, ∙-∙' i is land allocated to Grain for Green ; ■ ∙∙∙ are the output price,
wage and agricultural input prices, respectively; - is a compensation rate per area unit for the
conservation set-aside program; K and B are liquid assets and the amount that was borrowed,
respectively; are the household’s endowment of land and labor; 7 7 7 represent variable and
fixed transaction costs for off-farm work and borrowing; and - - - represent a household’s
consumption preferences, exogenous conditions on farming productivity and a household’s human
capital.
If the Grain for Green program were truly a randomized experiment in which participants were
randomly chosen from the targeted population, we would have an ideal statistical basis on which we
could use postprogram data for participants and nonparticipants to estimate
Lo = μ + αAgg + ε
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