Actual Price: Deviation from Law of One Price and its Correction

According to Law of One Price, producers and consumers are facing the same price in the market and make their production and consumption decisions accordingly. However, the dual-role as both producer and consumer has resulted in different prices actually received or paid by farm households for their selling or buying the same agricultural product, with the difference basically determined by marketing cost. The objective of this paper is to take the difference between actual and market prices, and production risk into account, trying to construct a farm household decision making framework based on their dual-role in the market, and to further discuss the implications to their decisions on structural adjustment.