Does Contracting Make Farmers Happy? Evidence from Senegal

In this paper we use a subjective well‐being approach to evaluate the welfare impact of contract‐farming. We analyze the impact of contract‐farming on self‐reported happiness using original panel data from a farm‐household survey in the N iayes region in S enegal. We use different econometric techniques and show that, when correcting for time invariant unobserved heterogeneity, contract‐farming has a positive effect on subjective well‐being. We find diverging effects for different types of contracts, suggesting that contract‐farming contributes more to farmers’ subjective well‐being under certain conditions and contract design. Our main finding corroborates earlier findings from empirical studies using cross‐sectional data and income‐based measures of welfare. In line with earlier results from the subjective well‐being literature, we find that absolute income has a positive but decreasing effect on subjective well‐being while comparison income has a negative effect. Also household demographic characteristics, their land and livestock assets, and housing indicators affect subjective well‐being.