Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2012:11: Modeling the Welfare Implications of Agricultural Policies in Developing Countries

Erik Jonasson (), Mateusz Filipski (), Jonathan Brooks () and J. Edward Taylor ()
Additional contact information
Erik Jonasson: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Mateusz Filipski: University of California, Davis
Jonathan Brooks: OECD
J. Edward Taylor: University of California, Davis

Abstract: This paper presents a new model which incorporates features of developing country agriculture that may be critical in shaping the welfare outcomes of alternative agricultural policies. The model features heterogeneous households linked through markets in a rural economy-wide structure, with endogenous market participation for farmers facing transactions costs. The model is used for policy simulations, including market price support, production subsidies, input subsidies, transaction cost removal, and unconditional cash transfers. Applications for six countries highlight the diversity of potential impacts of such policies. The simulation results suggest that there are circumstances under which some market interventions, such as input subsidies, may be only slightly less efficient at transferring incomes than direct payments.

Keywords: agricultural household model; agricultural policy; simulation; transaction costs

JEL-codes: O12; O13; Q12; Q18

23 pages, May 15, 2012

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