THE POLICY ANALYSIS MATRIX FOR AGRICULTURAL DEVELOPMENT Eric A. Monke Scott R. Pearson 1989 Outreach Program PART I: INTRODUCTION ..................................................................................................1 I. THE ROLE OF AGRICULTURAL POLICY ANALYSIS .......................................1 Rationales for Intervention .........................................................................................2 The Evaluation of Policy ............................................................................................3 Bibliographical Note to Chapter 1 .............................................................................8 II. INTRODUCTION TO THE POLICY ANALYSIS MATRIX ..................................10 Practical Issues Addressed .........................................................................................10 The Policy Analysis Matrix ........................................................................................11 Private Profitability .....................................................................................................12 Social Profitability ......................................................................................................13 Effects of Divergences ................................................................................................14 Comparisons among Agricultural Systems Producing Different Outputs ..................16 Dynamic Comparative Advantage ..............................................................................18 Concluding Comments ...............................................................................................19 Bibliographical Note to Chapter 2 ..............................................................................20 PART II: EVALUATION OF AGRICULTURAL POLICY ...............................................22 III. COMMODITY POLICY ...........................................................................................22 Classification of Price Policies ...................................................................................22 Illustrations of Distorting Price Policies .....................................................................24 Multiple Interventions .................................................................................................31 PAM and the Evaluation o f Commodity Policy ........................................................33 Efficient Policies That Offset Market Failures ...........................................................36 Concluding Comments ...............................................................................................37 Bibliographical Note to Chapter 3 ..............................................................................37 IV: FACTOR POLICY ....................................................................................................39 Classification o f Factor Policies ................................................................................39 Distorting Policies-Regulated Prices ..........................................................................39 Dynamic Effects o f Factor Policies ...........................................................................46 PAM and the Evaluation of Factor Prices ..................................................................49 V. MACROECONOMIC POLICY .................................................................................52 Elements of Macroeconomic Policy ...........................................................................52 Macro-Micro Linkages ...............................................................................................56 PAM and the Evaluation of Macroeconomic Policies ................................................62 Concluding Comments ...............................................................................................65 Bibliographical Note to Chapter 5 ..............................................................................66 PART III. SOCIAL VALUATION IN THE POLICY ANALYSIS MATRIX ...................68 VI. SOCIAL VALUATION OF COMMODITIES .........................................................68 Social Prices in a General Equilibrium Model ...........................................................68 Exchange Rates and Social Valuation ........................................................................73 Nontradable Goods and Social Valuation ...................................................................78 Concluding Comments ...............................................................................................82 Bibliographical Note to Chapter 6 ..............................................................................82 VII: SOCIAL VALUATION OF FACTORS ..................................................................84 Price Determination in Factor Markets .......................................................................84 Divergences and Social Factor Prices .........................................................................85 Concluding Comments ...............................................................................................93 Bibliographical Note to Chapter 7 ..............................................................................93 IV. EMPIRICAL ESTIMATION OF THE POLICY ANALYSIS MATRIX .....................95 VIII. CONSTRUCTING PAMS FOR COMMODITY SYSTEMS ................................95 .........................................................................................................................................95 The Estimation Strategy ..............................................................................................95 Defining the Commodity System ...............................................................................97 Classification of Inputs and Outputs ...........................................................................98 Evaluation o f Inputs and Outputs ..............................................................................104 Concluding Comments ...............................................................................................107 Bibliographical Note to Chapter 8 ..............................................................................108 IX. FARM-LEVEL BUDGETS AND ANALYSIS ........................................................109 .........................................................................................................................................109 Selection of Representative Crop Activities ...............................................................109 Procedures for Budget Preparation .............................................................................110 Collection of Input and Output Data ...........................................................................112 Complex Commodity Systems ...................................................................................115 Technological Change and Partial Budgeting ............................................................121 Concluding Comments ...............................................................................................122 Bibliographical Note to Chapter 9 ..............................................................................123 X. POST-FARM BUDGETS AND ANALYSIS ............................................................124 Selection of Representative Postfarm Activities ........................................................124 Procedures for Budget Preparation .............................................................................127 Survey Strategies ........................................................................................................130 Concluding Comments ...............................................................................................134 Bibliographical Note to Chapter 10 ............................................................................136 XI. ESTIMATING SOCIAL PROFITABILITY .............................................................137 Estimating Social Prices for Tradables .......................................................................137 Estimating Social Prices for Domestic Factors ...........................................................144 Estimating Input Use o f the Commodity System ......................................................151 XII. INTERPRETATION AND COMMUNICATION OF PAM RESULTS ................165 Interpretation of the Effects of Divergences ...............................................................165 Output Transfers .........................................................................................................165 Tradable-Input Transfers ............................................................................................166 Factor Transfers ..........................................................................................................170 Net Transfers ...............................................................................................................170 The Policy Analysis Matrix and Agricultural Planning ..............................................174 Communicating Results to Policy-Makers .................................................................180 Essential Elements of Policy Memos ..........................................................................183 Illustration of Elements of a Policy Memo .................................................................186