Hans Lofgren

Nonseparable Farm Household Decisions in a Computable General Equilibrium Model

Emerging empirical evidence and microeconomic theory suggest strongly that, in many developing country settings, farm household production and consumption decisions are nonseparable; that is, the farm household cannot be viewed as a separate or independent profit-maximizing producer and utility-maximizing consumer. The existence of such nonseparability indicates the presence of market imperfections or failures that may have important policy implications. For example, depending on the nature of the market imperfections, there may be threshold effects whereby policy changes have no effect on household behavior until the change is large in some measure. In this environment, policy analysis assuming the existence of perfect markets may badly misstate the impact of policy changes on producer behavior and household welfare.

Food subsidies in Egypt: reform options, distribution and welfare

Abstract Egypts food subsidies (in 1996/97 5.5 percent of government expenditures) cover rationed cooking oil and sugar (23 percent of subsidy cost) and unrationed bread and flour (77 percent). The subsidies enhance food security but are nontargeted and have substantial leakages. This paper uses a Computable General Equilibrium (CGE) model to simulate the short-run effects of alternative food-subsidy scenarios. Government savings from reduced spending finance uniform cuts in direct tax rates across all household types. The model uses a 1996/97 database with detailed household information. The targeting of cooking oil and sugar subsidies to “the needy” (the bottom two quintiles in rural and urban areas) has a progressive effect while elimination of this subsidy is regressive. Disaggregated household consumption changes are small (±0.3 percent). The targeting of all food subsidies is pro-needy, partly due to important indirect effects. The consumption of the needy increases by 0.5 percent with little change for the nonneedy. Food subsidy elimination is regressive: the needy suffer a consumption loss of 1.1 percent. If the government savings instead are transferred to the needy, the impact is reversed: consumption increases by 4.2 percent for needy households while the nonneedy register a small loss. The overall policy implication is that food subsidy reform can benefit the needy with at worst only a modest negative impact on the nonneedy. If the subsidy is entirely eliminated, targeted government programs would be necessary to protect the needy from the negative impact.

Spatial-network, general-equilibrium model with a stylized application

Abstract Spatial aspects of economic policy are often important. However, multi-region computable general equilibrium (CGE) models have rarely explicitly treated geographical space. This paper develops a spatial-network, mixed-complementarity CGE model, incorporating formulations from partial-equilibrium programming models. We implement the model with a prototype data set for a stylized, poor, developing country with rural regions linked to an urban region that is linked to international markets. We demonstrate that the model provides a good framework for analyzing the impact of higher world prices and reduced domestic transportation costs and that the explicit incorporation of space has a strong impact on simulation results.

A New Approach to SAM Updating with an Application to Egypt

When social accounting matrices (SAMs) are updated with fragmentary data the new column and row totals are often not all known in advance. Also, the overall total of all matrix entries may not be known. This results in a situation in which the generally used RAS method cannot be applied to update the SAM, as the outcomes become unreliable with unknown totals. In this paper a generalised version of the RAS method is developed, based on information theory. This method, which incorporates the RAS method as a special case, is more flexible with respect to necessary information and improves the accuracy of the updated SAMs. In addition to developing a generalised RAS method, we present an easily applied procedure for building SAMs which reduces the time needed to update them. The generalised RAS method and the SAM building procedure are applied to a 1991–92 SAM for Egypt.