Pasquale L. Scandizzo

Competitive Demand Structures under Risk in Agricultural Linear Programming Models

A method is presented for solving agricultural sector models under risk to obtain perfectly competitive levels of outputs and prices in all product markets when producers behave according to an E, V decision criterion. The nature of market equilibrium behavior is considerably more complicated under risk than in a deterministic setting. This presents difficulties in designing models which will always provide meaningful economic answers. These difficulties are overcome by stipulating conditions under which the proposed model is applicable. The resultant model is a quadratic programming problem, and linearization techniques are suggested which enable solutions to be obtained through conventional linear programming computer codes.

Market Intervention Policies When Production Is Risky

The supplies of many agricultural commodities involve important production risks. In analyzing market intervention policies, these risks should enter the analysis as stochastic elements in the slope of the supply function and not just in the intercept term. This specification leads to the result that optimally distorted prices are more efficient for social welfare than competitive market equilibrium prices. Important gains in social welfare may be obtained with risky products through the appropriate use of production quotas and price stabilization schemes designed to optimally distort the market.

Farmers' Expectations, Risk Aversion, and Market Equilibrium under Risk

The way in which farmers form their price and yield expectations and the consequences of these expectations on ensuing market equilibrium when production is risky are examined. If rational expectations are assumed, competitive market equilibria can be simulated in sectorwide mathematical programming models. This simulation is illustrated using a linear programming model of agricultural production at a subsector level in Mexico. Competitive markets are inefficient if farmers ignore correlations between stochastic prices and yields; competitive markets are efficient if correlations between stochastic prices and yields are taken into account. The simplest way in which this can be achieved is for producers to project last years per acre revenue for each enterprise. This approach can be incorporated into agricultural sector models by using linear programming methods. As results from an application at a subsector level in Mexico show, the adoption of linear programming methods may cause important differences in the solutions as compared with conventional model formulations. Three tables provide such data on average district cropping patterns, price solutions for the price expectations model, and price solutions for the revenue expectations model. 6 references.

Market Equilibrium Computations in Activity Analysis Models

This paper shows how an approximate competitive market equilibrium may be computed as the solution to a linear programming model, when production possibilities are described by activity analysis vectors and demand functions are locally linear. Numerical examples show that the degree of approximation may be expected to be very small in many cases. Prices and quantities of goods and resources and also incomes are explicit in the primal. The defining characteristics of a market equilibrium are written as primal constraints. Linearizations of inherently nonlinear expressions are attained by use of grid linearizations and the associated interpolation variables.

The Demand for Calories in Developing Countries

This paper uses household survey data on consumption to analyze the determinants of calorie intakes in developing countries. It relies on characteristic demand analysis for a demand function specification for calories. It explores the effect of calories price differences, income, and other socioeconomic factors on the intracountry and intercountry distribution of calorie intakes. The paper reaches three broad conclusions: (i) both income and price elasticities of demand for calories are below unity and are substantial for poorer consumers; (ii) even a moderate increase in calorie prices implies a large nutritional sacrifice for the poor if present income growth and distribution trends continue; and (iii) if moderate redistribution policies permit a substantial portion of the income increase to be allocated to the poor, sizable calorie price increases would not rule out elimination of malnutrition.

Portugal's entry into the EEC: Aggregate and distributional effects determined by means of a general equilibrium model

Abstract This paper addresses the question of how to construct a policy-oriented model on the basis of a social-accounting matrix (SAM). Starting from a Portuguese SAM, a general-equilibrium model is developed step by step, and when appropriate options are indicated for the models specification. The model is then applied with Portuguese data to the computation of general-income multipliers in order to provide a preliminary assessment of the aggregative and distributional effects on Portugal of entry into the European Economic Community. Increases in the availability of foreign exchange are found to affect urban incomes more than rural incomes and to affect the lower-income groups more than the upper-income groups in both rural and urban areas. the general-equilibrium model developed here contains production functions of the process-analysis type, labor-supply functions, possibilities for substitution among types of labor and between labor and capital, export and import functions, and a simple set of government accounts.

A partial analysis of sharetenancy relationships in Northeast Brazil

In order to explicitly examine the implications of sharecroppers and landowners having different objective functions, and to handle a multiple-output complication, a mathematical programming structure is employed to analyze share tenancy relationships. For a typical sharecropped plot in Northeast Brazil, simulations are obtained when the landowner and sharecropper respectively are the decision-makers, and for policies involving abolition of share contracts, land reform, and variations in share of the cash crop accruing to the landowner. The observed shares permit agreement by the two agents on farm plan, and this agreed-upon solution is Pareto-optimal. Beyond a narrow range around the observed share, the desired farm plans diverge, Pareto-optimality does not hold, and enforcement costs would be required.

Food risk and the poor

This paper analyzes food insecurity in rural areas from the point of view of poverty alleviation. By developing a conceptual framework and a general class of poverty measures, the paper analyzes the implications of food risk, low incomes, and unequal distribution for wage laborers and small farmers. This paper proposes rules of thumb to adjust conventional deterministic measures of poverty to account for food risk. A cross country analysis is conducted to empirically test the association between poverty and food risk. The results suggest a statistically significant and strong relationship between indicators of development on the one hand and measures of food risk, poverty, income distribution, and wealth on the other. Therefore, policies directed at food-risk programs should concentrate on alleviating average poverty and on reducing the impact of production uncertainty. This paper confirms that production risk and average access to food tend to be the most important and pervasive determinants of poverty. Any measure of poverty, therefore, would have to include some index of food insecurity or otherwise would miss one of the crucial problems of the poor in rural areas.

Considerations in Designing Stabilization Schemes

Stabilization schemes have, in the current more fundamental sources of uncertainty, national and international debates, come to such as production risks, price stabilization is mean almost exclusively price stabilization unlikely to be a first-best policy, schemes. Economic theory, while somewhat ambiguous on the topic, is far from supportive of the need for price stabilization schemes. A key feature of these analyses is to define commodities by possible states of nature as well as by their physical characteristics, so that Pareto-optimal equilibria are defined for the economy for each state of nature. The conclusion in this case is that stabilization must always be desirable and that the first-best policy is to remove the source of uncertainty. The authors shall largely share this preoccupation in this paper, but it is worth considering briefly the rationale of this focus.

Sustainable Development: Valuing the Future for the Environment and Equity

We argue that sustainable development is at its essence the destruction and creation of expansion options under the shroud of uncertainty. Without this options approach, the future is undervalued because of uncertainty and the opportunity to stage investment. As a result of this undervaluation, protecting the environment, in particular combatting climate change, is underinvested in favor of short-term returns. We extend this argument to income and wealth distribution arguing that public policy should favor longer-term investment and suppress returns on shorter-term capital. That is, policy should favor the future. In making this argument, we extend the analysis of the influential book by Piketty to real options analysis of investment under uncertainty. We find that taking into account the term structure of investment is more important than the average rate of return on capital in income and wealth distribution. Valuing the future not only benefits the environment but also results in a more equitable income distribution. Both are at the heart of sustainable development.