The Impact of Extension Services on Farm-level Income An Instrumental Variable Approach to Combat Endogeneity Concerns

• Published in: Applied economic perspectives and policy Vol. 40; no. 4; pp. 585 - 612
• Main Authors: Cawley, Anthony, O’Donoghue, Cathal, Heanue, Kevin, Hilliard, Rachel, Sheehan, Maura
• Format: Journal Article
• Language: English
• Published: Cary Oxford University Press 01.12.2018; John Wiley & Sons, Inc
• Subjects: Agricultural extension; Agricultural policy; Economic models; Economics; endogeneity; Extension; Farm income; Farmers; Farms; Impact analysis; instrumental variables; issues and policy; Longitudinal studies; panel data; Participation; Policy making; Profitability; Submitted Article; two‐stage least squares estimation; Extension; endogeneity; instrumental variables; two-stage least squares estimation; panel data; farm income
• ISSN: 2040-5790; 2040-5804
• DOI: 10.1093/aepp/ppx062

Agricultural extension is an important policy instrument utilized to diffuse knowledge and increase profitability among farmers. However, analyses on impact are subject to endogeneity concerns, causing multiple biases. Failure to combat endogeneity can lead to false inferences on impact. This article addresses this issue by applying an instrumental variable approach with distance to local advisory office and a policy change chosen as instruments for extension participation. The results show that participation significantly increased farm income and that OLS estimates underestimated the impact. Therefore, a superior estimate of impact is achieved which can be leveraged to better support accurate policy making.