By Professor Inderjit Lyn Singh
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Additional info for Agricultural Household Models: Extensions, Applications, and Policy
THE BASIC 31 MODEL Table 1-4. Effect on Real Income of Changes in Output and Fertilizer Prices EconomyTaiwan Malaysia Korea,Rep. 03 - - Not applicable. Fertilizer is barely used in the Sierra Leone and northern Nigeria samples and therefore was not modeled. use information on the underlying structure of preferences to calculate equivalent or compensating variation. The percentage change in real income among the six countries under consideration is less than the percentage change in either the output price or the fertilizer price (table 1-4).
Although governments have few policy instruments by which to improve the welfare of these households directly, price interventions and investment programs directed at land-operating households have spillover effects that may (or may not) be beneficial for these households. What can agricultural household models tell us about these effects? An increase in the price of an important agricultural staple will obviously hurt households that are net consumers of that item. The direct effect of a price increase will therefore be unambiguously negative for landless households and nonfarm households.
In addition, it appears that the loss in real income arising from a given percentage reduction in the output price can be offset only if the price of fertilizer is reduced by a much larger percentage. In Malaysia, for example, a 10 percent reduction in output price whereas a 10 percent rewould reduce real income by almost 7 percent, duction in the price of fertilizer would increase real income by only about 1 percent. This difference arises from the relative magnitudes of marketed surplus and fertilizer use.
Agricultural Household Models: Extensions, Applications, and Policy by Professor Inderjit Lyn Singh