A theoretical model is presented which integrates the consumption and production components of the rural household. A theoretically determined system of expenditure equations, derived factor demand equations and an off‐farm labor supply equation are estimated using primary data for Saskatchewan farm households. From the empirical results we conclude that if the wage rate can be observed or estimated, the farm household's behavior can be explained empirically in a manner consistent with received theory.Summary and ConclusionsA theoretical model integrating the consumption and production sides of the farm household or enterprise is estimated empirically using primary data for Saskatchewan farm households. The farm household was assumed to maximize its utility function subject to farm production and cash flow constraints. The empirical results indicate that the theoretical model can be estimated successfully even when data are sparse. While the coefficients for the expenditure, derived demand, and off‐farm labor supply equations are consistent with coefficients from similar equations estimated separately by others, the theoretically more precise integrated approach specifies the simultaneous effect of the variables across equations.From the empirical results and the theoretical considerations it is obvious that the wage rate is a key explanatory variable in the model. The wage rate links the three components of the model–final expenditures, the derived input demands and off‐farm labor hours. The wage rate is one determinant of the allocation of the operator's time (although other factors such as the nature of the operation and opportunities to work off‐farm dominated in this study), and both the wage rate and the allocation of the time determine the eventual income available to the rural household. In essence, then, the problem of explaining farm household behavior when the household's business enterprise function cannot be separated from its consumption activity is similar to that of traditional models based on the theory of the firm and models of consumer behavior. The only difference is that the wage rate is observable in the traditional models but needs to be estimated as a shadow price in models which seek to explain rural household behavior. As a result, research in this area must start with an explanation of the allocation of (at least) the operator's labor and a measure of the shadow wage rate. If the entire household's allocation of time between on‐farm and off‐farm labor and leisure is determined, it is possible to treat its consumption and production activities separately. Further research is required to extend the model to explain household labor supply to both the farm and off‐far