CAPITAL FORMATION AND THE FIRM-HOUSEHOLD DECISION MAKING PROCESS

Abstract

Despite the difficulty of assembling appropriate data, detailed knowledge regarding the capital formation processes at the rural firm-household level is necessary if the development process is to be understood. No satisfactory explanation of rural growth can be formulated until we understand how the primary capital producing unit, the firm-household, makes decisions. The major focus of this research project, therefore, is on how the firm-household decision making process is related to capital formation. The following discussion is divided into three parts: (1) an outline of a firm-household decision making model which is being used to study the capital formation process, (2) a brief discussion of the major research issues on which the project is focusing in Brazil and Taiwan, and (3) an outline of how firm-household analysis can be aggregated into sub-regional or regional models for more comprehensive policy use.