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Studies in Agricultural Economics and Sociology
Capinj nd Technology Occasional Paper No. 139
A DYNAMIC MICROECONOMETRIC MODEL OF A;RICULTURAL
DEVELOPMENT
By
Richard H. Day and Inderjit Singh
March, 1972
Department of
Agricultural Economics and Rural Sociology
The Ohio State University
2120 7yffe RoaU
Columbus, Ohio 43210
OF AGRICULTURAL DEVELOPMENT
MODEL
DYNAMIC MICROECONCQAETRIC
A
by
Dcy and Inderjit Singh
chard H.
P
on global issues of economic
Economic Lheorists have often concentrated
path of per capita incemes, the existence and
development: the long run
the intertemporal optimality of alternative
character of balanced growth,
to macroeconomic theories characterized
growth trajectories. This has led
dramatic properties such as the "iron law
by a few relatively simple, but
of wages" that derived from classical reasoning, or the currently fashion
policymakers and the rank
rules of economic growth." ",t
able "golden
and file civil servants who are ch:ged with implementation, have long
not sufficient by itself
is
known that an awareness of the "big issues"
to guide the host of individual decisions for which they are directly
responsible or (ver which they hope to hold sway through well conceived
sooner or later pol
direct and indirect coptrols. They have found that
icies must account for the realities of decisionmaking inthe field ano
factory. Unfortunately for them, however, at this microeconomic level,
little guidance can be obtained from the traditional economic literature.
There has hoen a wide ,zapbetween the principles of macroeconomic develop
ment theory and the practice of policy makers and administrators.
initiated under a
based was
"T research upon which this paper is
rant frcn K Apric.ultura Development Council and continued with the
" Com
w t2 :, l cic'ence Fou.daton, th (,aduate Research
,.,orn , the Departm'ent of ncnomics and
. v r' .,sn.nln and ackncwledpze
. q;ratefully
in ;,, .y vprsily. We
ate U.
"
n
O
,
..
Agric.u~tu'r: 7n,'n P"[
4.S, j.hi and ,p.vs insLance of Mohinder
f
h'. help ,' t
Hollenbeck.
Mudahar, .rrivt Mller hnd Kev I.
S.
of Economics, end Agricultural Economics, University
Pr,,fessor and Agricultural
Professor of Economics
of Wisconsin, and Assistant
Economics, Ohio State University, respectively.
2
This study attempts to help fill this gap by developing and testing
a dynamic, microeconometric model that
is
capable of simulating the per
formance of an individual sector, in this case
agriculture, in a
way that
explicitly accounts for various strategic details of technology and de
cisionroaking,. Our first purpose has been to improvc our understanding
of the deve]opmunr process. Our second purpose is
to aid the formulation
of effective development policy by making possible detailed projections
and
comparative dynamic analyses of proposed governmental policies at
the
intrasec
tor level.
Part I of cur paper outlines the geer.l requirements for a dynamic,
microeconomic model of agriculturr,' development. Part 2 then presents a
mathematical theory that incorporates what we
think are the essential
features or strategic details of the process. In part 3 this theory is
approximated by an operational model that can be estimated and simulated
within existing data and computational limitations. Part
4 is
devoted t,(
testing the model's ability to describe recent agricultural history in the
Central Punjab of India. We find the model performs fairly well P;;d suit
able modifications should be applicable to virtually any region undergoing
a trar.7ition from traditional to modern agriculture.
1. THE STRATEGIC DETAILS OF DEVELOPMENT 1
I!. The .
'3rnt farmen.r as an "economic man".
Until recently it was ar'.ued by many, nd eith great force, that people
in vnriour soceJ..y'e aro: rd , to rules so different that microeconomic
theory Is
not relevant, that the peotic of less developed countries are
tradition bound, that cultural and institukional restraints severely circum
scribe their responsiveness to market incentives, and that the developed
3
countries have a kind of monopoly on "economic 2
man." SCHULTZ [19641 on
the other hand argued that traditional patterns were maintained not because
of hidebound restraints but because they represented a rational equilibrium
under existing conditions. His position has been confirmed by the growing
number of supply response studies in the LDC's.
Focusing on the quest ion of whether or net peasants in traditional or
near traditional anric:t
"Hre respond to opportunities which are made avail
able by changes in market cconditions, various investigators have shown
that agricuntural prod'action is price respcisive, especially when adjust
ment ials hue to uncerta inty and quasifix" A capital stocks are accounted
for. Moreover, they suggest that the _t oral form and direction of this
response is consistent with price theory and that peasants in traditional
agriculture respond to ;market incentives when sufficient incentives exist.
it is cn the basis of tnese results that we believe behavior of
farmers in the LDC's can be represented by a model in which choices among
well defined alternatives are made by explicitly attempting to maximize
the attainment of well defihed goals. It seems, however, that the caven
tional marginal .analysis does not adequattly describe maximizing by peasant
farmerv as it really occurs. We think that at least six complications should
be incorporated into the Analysis, These are the interdependence of farm
household and fir:' decisions, multiproduct, multiprocess technology, un
!rtainty, technologcal cnnnge, learning and nonfarm linkages. We shall
,n'emr nt ' I'. on th.se ji turn.
1.. i.trde'd of 0:'nho'
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