More than half of humanity and the overwhelming majority of the world's poor live and work in villages. Their production and consumption activities take place within small units, usually households. Yet these units do not behave in isolation from one another. Interactions among village households in factor and commodity markets create local income linkages and general-equilibrium feedbacks. Village institutions shape these interactions. Economic linkages and feedbacks alter the impacts of policy, market, and environmental changes on rural economies quantitatively, and they may shape them qualitatively as well.

In the past, the study of village economies and institutions was primarily the domain of anthropologists. Ethnographic research has provided a window into the structure and workings of village economic, social, and cultural institutions. For the most part, however, these insights have not made their way into quantitative economic modeling.

This book is motivated by our conviction that modeling village economies in diverse economic, social, and cultural settings is critical for understanding the likely impacts of rural development policies. Policymakers and researchers concerned about economic welfare and rural and urban economic growth need to recognize the central role of villages in economic development and in alleviating poverty. Quantitative models of village economic activity are required to analyze the complex impacts of government policies and other exogenous influences on production, incomes, poverty, and inequality in LDC (less developed country) rural areas.