1 a general equilibrium analysis at the economy and household level: an application to italian...

1

A General Equilibrium Analysis at theA General Equilibrium Analysis at the

Economy and Household Level:Economy and Household Level:

An Application to Italian AgricultureAn Application to Italian Agriculture

Riccardo Magnani and Federico PeraliRiccardo Magnani and Federico PeraliUniversity of VeronaUniversity of Verona

La Microsumlacion como instrumento de evaluacion La Microsumlacion como instrumento de evaluacion

de las politicas publicasde las politicas publicas

Madrid, November 15-16 2004Madrid, November 15-16 2004

2

OrganizationOrganization

The macro levelThe macro level The “MEG” General Equilibrium Model at the The “MEG” General Equilibrium Model at the

Economy Level (scenarios and results)Economy Level (scenarios and results) The Political Economy of the ResultsThe Political Economy of the Results

The micro levelThe micro level The Collective Farm-Household ModelThe Collective Farm-Household Model

Estimation techniqueEstimation technique Econometric ResultsEconometric Results The General Equilirium Representation of the The General Equilirium Representation of the

Estimated Farm-Household ModelEstimated Farm-Household Model

3

The micro-macro link

Household Farm Model

Household = community level I

TerritorialAGE

Territory

AGE

Nation

n

1hhhN

Nh

NTCh

CAGE

Community level II

C

1iihC

Ch

I

1iigh

Collective Model

Individuals

4

The macro LevelThe macro Level

The “MEG” General Equilibrium Model

of the Italian Economy

with Emphasys on the Agricultural Sector

5

The MEG ModelThe MEG Model

The Input-Output Table (SAM) of Italian

Agriculture (integrated with the rest of the Italian economy)

“Non behavioral” simulations

impacts on the farm/household/environmental

budgets

The MEG ISMEA model

The ISMEA survey of the Socio-Economic The ISMEA survey of the Socio-Economic Characteristics of Italian Farm-households Characteristics of Italian Farm-households (1881 obs)

6

The 1996 ISMEA Socio Economic SurveyThe 1996 ISMEA Socio Economic Survey

The ISMEA survey was designed on the basis of a household collective model of the farm-household aiming at anticipating the real demand for information necessary to estimate the econometric model

7

Data SourcesData Sources

Agricultural Household

Rural and Urban Households

ISMEA

Farm BudgetsItalian Input-Output Table

Household Budgets

ISTAT ’95, Household Budgets

Income and Wealth

Banca d’Italia ’95, Income Data

LeisureEurisko ’95, Time Use Data

8


The I-O Table

41 sectors of which

•23 agricultural •9 agro-industrial •7 other industries•2 services

The SAM

11 household classes •7 farm-household types•1 rural class•3 urban classes (low-medium-

high income)

(Households consume and offer labor)

The GovernmentRest of the World and Europe

The StructureThe Structure

9

Labor used by 41 sectors

capital used by 41 sectors

independent labor used by 23 sectors

land used by 23 sectors

Indirect taxation net of transfers


PRODUCTIONPRODUCTION

PRIVATE CONSUMPTIONPRIVATE CONSUMPTION

DEMANDDEMAND

LEISURELEISURE

ADDED VALUEADDED VALUE AVAILABLE INCOMEAVAILABLE INCOME

input/output table

41 sectors

(41x41)

The Model SchemeThe Model Scheme

Table of private consumption

(41x11)

11 categories of private consumption

Public expenditures

private investiments and stocks variations

exportTime budget

(11x1)

Dependent labor income

Capital income

Indipendent labor income

Returns from land

transfers

taxation

10


FARM AND RURAL HOUSEHOLDS

The model schemeThe model scheme

LIMITED RESOURCES

LARGEPROFESSIONALS WITH LABOR

REMUNERATION:LOW HIGH

RESIDENTIALRETIRED VERYLARGE

RURAL

URBANHOUSEHOLDS

LOWINCOME

MEDIUM INCOME

HIGHINCOME

FIRMSGOVERNMENT

SAM structure

11


Limited Resources Very small farm-households with very low gross returns, farm assets and global income.

Retired Farms with retired heads of households.

Residentials Farms whose heads of households are prevalently employed in non agricultural activities.

Small farm-households Farms with gross returns less then the first quartile of the distribution.

Medium Farm-households Farms with gross returns between the first and third quartile of the distribution.

Large Farm-households Farms with gross returns greater then the third quartile of the distribution.

Very Large Farm-households Farms with gross returns greater then the third quartile of the distribution (livestock and intensive cultivations).

Farm-Household Typologies Farm-Household Typologies

12

LeisureLeisure

The stylized time use survey is a peculiar aspect of the ISMEA survey. Leisure information for the urban households come from the Eurisko Survey

leisure=recreation+personal care+rest

RURAL

1 2 3 4 5 6 7 8 9 10 11

Limited

ResourcesRetiremnt Residential Small Middle Large Very Large Rural

high

income

Mid

incomelow income

0.513 0.543 0.463 0.532 0.518 0.512 0.500 0.542 0.723 0.669 0.639

Farm Typologies

Farm Households URBAN

13


Soft wheat 1

Durum wheat 2

rice 3

Corn and other cereals 4

Dried fodder 5

Irrigated forage 6

potatoes 7

tomatoes 8

Other vegetables and legumes 9

Sugar beet 10

Soy bean 11

Other industrial crops 12

tobacco 13

Grapes 14

Olives 15

Fruit 16

Floricolture 17

Milk 18

Beef 19

Forestry 20

Sheap and goats 21

Other livestock 22

Fishery 23

AgricultureAgriculture

The sectorsThe sectors

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Meat 24

Milk and other dairy products 25

Bread, pasta and other transformed products 26

Transformed vegetable and fruit products 27

Fats and oils 28

Feed 29

Transformed tobacco 30

Sugar 31

beverages 32

Gasoline 33

Electric energy 34

Water 35

Fertilizers 36

Pesticides 37

Other chemical & pharmac. products 38

Other industries 39

Agro-IndustryAgro-Industry Other industriesOther industries

Transportation, communication, credit 40

Other services 41

ServicesServices

The sectorsThe sectors

15

ImplicationsImplications

Costs/Returns Ratio(%)

With premium

Without Premium

Durum Wheat 63,8 125,8

Soft Wheat 74,1 103,0

Dried Forage 21,7

DecouplingDecoupling

An example of a Center Italy FarmAn example of a Center Italy Farm

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Ranking the ScenariosRanking the Scenarios

The scenarios have been ranked according to:The scenarios have been ranked according to:

The producers’ point of view The producers’ point of view

(choice based on production protection and value added)(choice based on production protection and value added)

The agro-industry point of view The agro-industry point of view

(choice based also on other aspects)(choice based also on other aspects)

The consumers and society’s point of view The consumers and society’s point of view (choice based on inflation and welfare(choice based on inflation and welfare))..

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The Producers’ point of viewThe Producers’ point of view

D1 D2Amax D2Bmax D1 D2Amax D2Bmax D1 D2Amax D2Bmax0,019 Grano Tenero -27,81 -18,99 -30,21 1 2 0 0,019 0,039 0,0000,021 Grano Duro -36,33 -25,90 -13,45 0 1 2 0,000 0,021 0,0420,016 Riso 0,16 -0,48 -0,30 2 0 1 0,031 0,000 0,0160,058 Mais e altri cereali -0,77 0,13 -1,15 1 2 0 0,058 0,117 0,0000,037 Foraggi irrigui 16,31 12,14 17,14 1 0 2 0,037 0,000 0,0730,025 Foraggi non irrigui 30,33 22,27 17,43 2 1 0 0,050 0,025 0,0000,032 Patate 1,76 0,24 0,23 2 0 0 0,063 0,000 0,0000,026 Pomodori 1,82 0,27 0,26 2 0 0 0,052 0,000 0,0000,182 Altri vegetali -0,56 0,43 0,42 0 1 1 0,000 0,182 0,1820,013 Barbabietole 2,49 1,91 2,11 2 0 1 0,027 0,000 0,0130,002 Soia -80,67 -74,22 -80,80 1 2 0 0,002 0,005 0,0000,004 Altre colture industriali -20,59 -13,49 -28,94 1 2 0 0,004 0,008 0,0000,006 Tabacco 2,20 1,52 1,75 2 0 1 0,011 0,000 0,0060,045 Vite 0,16 0,07 0,07 2 0 0 0,091 0,000 0,0000,038 Olivo 0,37 0,08 0,09 2 0 0 0,076 0,000 0,0000,193 Frutta e Agrumi 0,31 0,11 0,11 2 0 0 0,387 0,000 0,0000,027 Floricoltura 2,23 1,66 1,82 2 0 1 0,054 0,000 0,0270,058 Allevamenti da latte 5,2 3,89 4,21 2 0 1 0,117 0,000 0,0580,092 Allevamenti da carne 1,22 1,09 1,33 1 0 2 0,092 0,000 0,1830,005 Silvicoltura 2,11 1,33 1,41 2 0 1 0,010 0,000 0,0050,014 Ovicaprini -2,51 -1,96 -3,29 1 2 0 0,014 0,028 0,0000,086 Altri animali 2,30 1,90 1,38 2 1 0 0,172 0,086 0,000

1 Totale voti 33 14 13 1,367 0,510 0,606

Il voto ex equo viene attribuito nel caso in cui le differenze siano inferiori a ± 0.03 e riceve il punteggio inferiore.

Peso VA Totale Pesato x VA

SIMULAZIONE REGOLA DI BORDA PER VARIAZIONE DI PRODUZIONE

Prodotto Variazione Votazione

La regola di voto prevede di assegnare un voto maggiore alla variazione positiva maggiore o alla variazione negativa minore.

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The AgroIndustry Point of ViewThe AgroIndustry Point of View% Change Borda Vote Weighted Vote

Weights Products D1

D2A max

D2B max D1

D2A max

D2B max D1

D2A max

D2B max

0.5 soft wheat -27.81 -18.99 -30.21 1 2 0 1 1 0 0.5 durum wheat -36.33 -25.90 -13.45 0 1 2 0 1 1 0.5 corn and other cereals -0.77 0.13 -1.15 1 2 0 1 1 0 1.0 fodder (sileage) 16.31 12.14 17.14 1 0 2 1 0 1 1.0 dried fodder 30.33 22.27 17.43 2 1 0 2 1 0 0.5 soy beans -80.67 -74.22 -80.80 1 2 0 1 1 0 0.5 other industrial crops -20.59 -13.49 -28.94 1 2 0 1 1 0 0.5 milk 5.2 3.89 4.21 2 0 1 1 0 1 0.5 beef 1.22 1.09 1.33 1 0 2 1 0 1 0.5 sheep and goats -2.51 -1.96 -3.29 1 2 0 1 1 0 0.5 cereal products -0.03 -0.02 -0.02 0 0 0 0 0 0 0.5 meat 0.46 0.41 0.39 2 0 0 1 0 0 0.5 dairy products 0.48 0.28 0.31 2 0 0 1 0 0 0.5 fats and oils -0.60 -0.51 -0.73 1 2 0 1 1 0 1.0 feed -2.44 -1.54 -2.24 2 0 1 2 0 1 1.0 fertilizers -7.17 -5.05 -4.31 2 1 0 2 1 0 1.0 pesticides -3.49 -2.52 -2.60 2 0 1 2 0 1 0.5 Agri-food trade deficit 12.60 9.00 8.60 0 1 2 0 1 1 0.5 land price 18.29 14.24 15.45 0 2 1 0 1 1 0.5 dependent labor -0.11 0.08 0.10 0 1 1 0 1 1 0.0 farm labor -0.76 -0.35 -0.29 0 1 2 0 0 0 0.5 farm-hh income (non profes) 0.03 0.09 0.11 0 1 1 0 1 1 1.0 farm-hh income (profes) 0.58 0.50 0.53 2 0 0 2 0 0

1 Total 24 21 16 17 11 8

25

The Consumer Point of ViewThe Consumer Point of View

PRODUCTS Food Budget

Share

D1 % Change Consumer

Price Weighted

D1

D2AMax % Change Consumer

Price

Weighted D2A Max

D2B Max % Change Consumer

Price

Weighted D2B Max

Fish 0.087 0.07 0.006 0.04 0.003 0.04 0.003

Beef 0.228 -0.13 -0.030 -0.13 -0.030 -0.12 -0.027

Milk and Dairy Products 0.138 -1.26 -0.174 -1.16 -0.160 -1.18 -0.163

Bread, Pasta, other cereals 0.167 0.02 0.003 0.00 -0.001 0.00 -0.001

Veg and Fruits 0.176 -0.03 -0.005 -0.05 -0.009 -0.04 -0.007

Oils and Fats 0.038 0.01 0.000 0.00 0.000 0.06 0.002

Sugar, Coffee and Others 0.074 -0.31 -0.023 -0.26 -0.019 -0.28 -0.021

Beverages 0.092 -0.10 -0.009 -0.09 -0.008 -0.09 -0.008

Change in Consumer Price Index for Food Products -0.231 -0.223 -0.221

Variance of Consumer Price Index for Food Products 0.0036 0.0030 0.0031

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Social Welfare RankingsSocial Welfare Rankings

Mean Initial Population Share of Income level Income level Share Total Income Household Class

in €uro in billions €

Limited-resource 5552 0.353 0.003 0.001

Retirement 19225 0.390 0.001 0.001

Residential/lifestyle 27892 0.516 0.001 0.001

Farming occupation/lower-sales 3727 0.387 0.005 0.001

Farming occupation/higher-sales 19152 7.044 0.018 0.014

Large family farms 104985 20.656 0.010 0.041

Very large family farms 631457 19.662 0.002 0.039

Rural 22814 61.401 0.130 0.123

High income 44416 190.359 0.208 0.382

Mid income 19130 163.974 0.415 0.329

Low income 7838 33.577 0.208 0.067

Total / mean 82381 498.320 1.000 1.000

Initial D1 D2Amax D2Bmax Abbrev Social Welfare W=y_a*exp(-I) 55858 55856 55867 55876 Initial D1 D2Amax D2Bmax Gini index by scenario 0.389 0.3911 0.3911 0.3912

27

Pareto RankingsPareto Rankings

Pareto Ranking – Welfare % changes D1 D2Amax D2Bmax % change % change % change

Limited-resource -0.070 -0.005 0.004

Retirement -0.080 0.020 0.040

Residential/ lifestyle 0.430 0.450 0.490

Small 0.030 0.120 0.140

Medium 0.780 0.680 0.720

Large family farms 0.540 0.430 0.450

Very large family farms 0.280 0.210 0.210

rural -0.020 -0.020 -0.030

high income -0.010 -0.010 -0.020

mid income -0.020 -0.020 -0.020

low income -0.008 -0.010 -0.020

mean 0.25 0.27 0.30

28

It follows that …It follows that …

Total Decoupling is preferrable from the producer point of view

The level of well-being increases especially for the medium and large farm-households

The reform does not significantly affect consumer prices

The level of social welfare and society’s income distribution are not affected by the reform

Decoupling benefits especially the professional farms

29

Equity and EfficiencyEquity and Efficiency

Equity in the agricultural reform debate in Italy is not an issue at the macro level (with the exception of the non professional households in the South)

However, the equity question is open within the household society: what is the reorganization of the household due to policy

changes in the farms deciding to “Disactivate?” or to “leave livestock” or … need to get “real”, i.e. micro!

How does the reform affects labor/leisure allocations and welfare levels?

Can we regionalize the macro-results with the micro approach?

A related practical question: How much of the macro-detail is maintained at the micro-level and viceversa?

30

The Micro-Macro LinkThe Micro-Macro Link

Exact aggregation theory

The micro(macro) level is obtained by zooming in (out) the macro(micro) level

One single source of information feeds both the micro and macro behavioral model:

the ISMEA survey about the socio-economic conditions of Italian Agriculture was designed ad hoc to construct the micro/macro link and to support a collective approach to the theory of the household

31

The Micro LevelThe Micro Level

The Farm Household Model

within a

Collective Framework

32

The Farm-household FrameworkThe Farm-household Framework The household enterprise, be it a farm or a firm, is

the micro-level mirror image of the macro-economy: an ANALOGY principle

At the household level, production and consumption decisions are non separable

As far as information about home production is available and modeled, urban households are household enterprises as rural households do

The collective approach permits deducing the welfare levels of individual household members thus making it possible to account for gender and inter-generational differences in the evaluation of policy impacts

33

A Challenging MotivationA Challenging Motivation

To determine how much money is needed to make each household member as well off as they were before a change in living conditions, compensations should be defined on the basis of individual rather than household welfare

This requires the knowledge of individual utilities that are derivable from the identification of the rule governing the intra-household allocation of resources within a collective approach … (from inter-household to inter-personal comparisons)

Labor/leisure choices are individual

36

The Edgeworth’s Box and The Edgeworth’s Box and the cooperative Nash solutionthe cooperative Nash solution

Um

Core

Contracts curve Uf

Um W=(Uf-Vf

(Um-Vm)

A Set of negotiation B e Threat point Uf

38

Research Program:Research Program: model of a Micro-Economy model of a Micro-Economy

((Production and ConsumptionProduction and Consumption))

x ( , , , ) ,i i i i iMa U x z l d i m f

1

, ,N

x ij i i i i m fj

st p x w o pq rF w w y Y

i i i il T h o f

( , , )i i iz x h d

( , , )j iq F f d

39

A Miniature Gen Eq Model A Miniature Gen Eq Model of the Household Enterpriseof the Household Enterprise

Reduced Form of the Micro Economy

( , , ; )i ih h p r w d

Production Consumption

( , , )j iq F f d

( , , , )jF p r w d

( , , , )if p r w d

( , ( , , , ))ix x p p r w d

( , ( , , , ))iz z p p r w d

( , ( , , , ))il l p p r w d

( , , )ii iz x h d

i i i iT l o h f

40

Informational Requirements to Informational Requirements to Implement the Collective ApproachImplement the Collective Approach

φ is the sharing rule governing the intra-household allocation of resources. The existence of the sharing rule implies that we can recover individual consumptions and utility

• Labour/Leisure • Consumption• Consumption and Labour (and Production)

The Farm-household Information set is 3 + at least one exclusive good

54

Graphically … how does power changes Graphically … how does power changes as the wife’s wage increasesas the wife’s wage increases

pre

dic

ted

sh

ari

ng

rule

Wife's wage (log)1 2 3

.2

.4

.6

.8

1

57

Descriptive Statistics of the Variables Descriptive Statistics of the Variables used in the Econometric Analysis – Cons. Sideused in the Econometric Analysis – Cons. Side

Variable Mean Std. Dev.

Couple full income - log 9.002 0.2366

Male Budget Shares Domestic 0.215 0.1164 Food 0.156 0.0684 Clothing 0.003 0.0029 Other goods 0.212 0.1120 Leisure 0.415 0.1465

Female Budget Shares Domestic 0.268 0.1335 Food 0.135 0.0614 Clothing 0.003 0.0024 Other goods 0.184 0.1027 Leisure 0.410 0.1572

Prices in Log Male domestic 3.540 0.5756 Food 2.369 0.2541 Male clothing 1.858 0.9570 Other goods 6.547 0.6521 Male leisure 2.256 0.0485 Female domestic 3.855 0.6990 Female clothing 1.956 0.9203 Female leisure 2.226 0.0619 Demographic Characteristics North 0.363 South&Islands 0.416 Hill 0.771 No. of children 1.367 1.0925 Wife education 1.169 0.4246 D.my =1 wife decides on off farm labour 0.068 Male full income in log 8.225 0.2642 Female full income in log 8.376 0.2546 Male non labor income in log 4.643 3.7545 Female non labor income in log 6.719 2.5633 D.my =1 if farm inherits by the husband 0.658 Wife and husnad age poroportion 0.479 0.0235 Wife and husnad education proportion 0.420 0.0878 Wife and husband relative price of leisure 0.971 0.0463 Wife and husband relative price of clothing 1.413 1.2641 Husband age / mean (husband age) 1 0.2104 D.my =1 if high educated husband 0.545 Z1 – Log of family labour, hours per month 5.296 0.8313 Z2 – Log of 5% of capital 4.412 1.9367 Z3 – Log of total hectares 1.658 1.7271

58

The Production side of the Household The Production side of the Household EconomyEconomy

Own and Cross-price Elasticities

Husband Wage

Wife Wage

Others Wage

Price of Inputs

Husband Domestic Share -0.147 0.420 -0.911 2.580

Wife Domestic Share -0.558 -0.958 1.350 0.089

Other Components Domestic Share -0.029 -0.137 -1.650 0.619

Demand for Inputs - Share -0.060 0.278 -0.670 -0.939

Household Production – A CRS Technology

59

Farm ProductionFarm Production

Hired labour Chemicals Materials

Hired labour -0.3647 0.1403 0.1866

Chemicals 0.304 -0.6513 0.3094

Materials 0.3095 0.2411 -0.6072

Input price

CropsFruits and Other

Vegetables Milk Livestock

Hired labour 0.266 0.006 0.234 0.061

Chemicals 0.335 -0.155 0.036 0.029

Materials 0.222 0.073 0.265 -0.109

Output Elasticities - Factors

60

Farm ProductionFarm Production

Elasticities with respect to Farm Characteristics - Factors

Allen Elasticities of substitution - Factors

North South PlanesHead’s

AgeHead’s Educ

No.Children/Ha

Hired labour 0.339 0.674 0.181 0.123 0.055 -0.010

Chemicals 0.102 -0.366 0.335 0.081 0.020 0.045

Materials -0.245 -1.012 -0.088 0.311 0.000 0.059

Hired labour Chemicals Materials

Hired labour -2.923 0.364 0.396

Chemicals -2.698 0.999

Materials -1.961

61

Farm productionFarm production

Shadow wage Wage-offWage hired

labour

Sample 8571 11589 8896

Limited-resource 1515 12083 10360

Retirement 3851 19240 10319

Residential/lifestyle 4146 12795 14535

Farming occupation/lower-sales 2286 11293 12030

Farming occupation/higher-sales 5020 11339 8038

Large family farms 12677 11684 8301

Very large family farms 34390 11625 9378

Shadow Wage, Wage off and Wage of Hired Labour by Farm Typologies, values are in Italian Lire

62

The Consumption side of the Household The Consumption side of the Household EconomyEconomy

Husband

Domestic good Food Clothing Other Leisure Income

Domestic good -0.338 0.007 0.036 0.045 0.142 0.410

Food 0.005 -0.409 0.071 0.071 0.106 0.115

Clothing 0.001 0.002 -0.199 -0.001 0.001 0.085

Other 0.044 0.097 -0.041 0.037 -0.074 0.191

Leisure 0.288 0.303 0.134 -0.153 -0.176 1.998

Wife

Domestic good Food Clothing Other Leisure Income

Domestic good -0.254 0.022 -0.005 0.041 0.134 0.484

Food 0.011 -0.390 0.051 0.065 0.085 0.115

Clothing 0.000 0.001 -0.205 0.000 0.001 0.096

Other 0.028 0.089 0.020 0.056 -0.068 0.140

Leisure 0.215 0.278 0.139 -0.162 -0.152 1.960

Gender Specific Compensated Price and Income Elasticities

63

The Consumption side of the Household The Consumption side of the Household

EconomyEconomy

Husband

North South-Island No. Children Wife educ.

Domestic good -0.069 0.062 -0.006 0.012

Food 0.249 -0.100 0.154 -0.018

Clothing 0.095 0.203 0.136 -0.002

Other 0.004 0.016 -0.014 -0.032

Leisure -0.056 -0.005 -0.046 0.016

Wife

North South-Island No. Children Wife educ.

Domestic good 0.051 0.066 -0.028 -0.027

Food 0.239 -0.098 0.153 -0.025

Clothing 0.033 0.123 0.123 0.001

Other 0.009 0.016 -0.016 0.007

Leisure -0.109 -0.019 -0.024 0.021

Demographic Elasticities

64

Intrahousehold Resources Intrahousehold Resources AllocationAllocation

Variable Mean Std. Dev. Min. Max.

Husband

Predicted sharing rule 0.401 0.0447 0.252 0.615

Actual sharing rule 0.463 0.0505 0.291 0.705

Variable Coefficient Std. Error

Husband non labour incombe (in log) -0.0011 0.6534

Wife non labour incombe (in log) 0.0001 0.5438

Dummy = 1 if wife decides on off-farm labour -0.0079 7.9926

D.my =1 if farm inherits by the husband -0.0039 3.5816

Wife and husband age proportion -0.0487 69.3667

Wife and husband education proportion 0.0232 21.9343

Wife and husband relative price of leisure -0.1243 47.4734

Wife and husband relative price of clothing -0.0002 2.3346

Summary of Predicted and Actual Sharing Rule

Marginal Effects of the Sharing Rule

66

From the Econometrics From the Econometrics to General Equilibrium by Household to General Equilibrium by Household

TypeType

The estimated production technology and consumption preferences have been included in the household general equilibrium model, so no need for calibration

Aggregation costs

In the future, econometric estimates for the 23 sectors

67

CAP Reform-% Change in Production (Xs) and CAP Reform-% Change in Production (Xs) and Domestic Cons. prices (Pd)-Total Decoupling ScenarioDomestic Cons. prices (Pd)-Total Decoupling Scenario

Crops Xs

Production Pd

Domestic Price weight

weighted Xs

weighted Pd

1 Soft Wheat -27.64 0.60 5.36% -1.48 0.03 2 Durum wheat -36.11 0.60 8.29% -2.99 0.05 3 Rice 0.20 -1.06 3.20% 0.01 -0.03 4 Corn -0.71 -1.15 18.81% -0.13 -0.22 5 Fodder 16.32 -10.49 10.89% 1.78 -1.14 6 dry hay 30.36 -15.25 7.26% 2.20 -1.11 7 Potatoes 1.80 -0.83 3.38% 0.06 -0.03 8 Tomatoes 1.86 -0.77 4.17% 0.08 -0.03 9 Other vegetables -0.52 0.27 25.75% -0.13 0.07

10 Sugar beet 2.48 -1.20 4.56% 0.11 -0.05 11 Soy beans -80.67 0.60 1.83% -1.48 0.01 12 Other industrial crops -20.68 11.15 1.46% -0.30 0.16 13 Tabacco 2.19 -0.95 5.04% 0.11 -0.05

total 100.00% -2.17 -2.34 Fruits and vegetables

14 Grapes 0.18 -0.11 23.21% 0.04 -0.03 15 Olives 0.38 -0.39 18.68% 0.07 -0.07 16 Citruses, fresh and dry fruits 0.32 -0.13 30.25% 0.10 -0.04 17 Floricolture 2.27 -0.91 23.30% 0.53 -0.21 20 Forestry 2.19 -0.92 4.57% 0.10 -0.04

total 100.00% 0.84 -0.39 Milk

18 Milk and milk products 5.21 -2.96 total 5.21 -2.96 Livestock

19 Beef 1.22 -0.72 34.34% 0.42 -0.25 21 Sheep and goats -2.49 0.69 9.44% -0.24 0.07 22 Other livestock 2.35 -1.11 56.22% 1.32 -0.62

total 100.00% 1.50 -0.81

68

% Changes in Factor Prices% Changes in Factor Prices Total Decoupling ScenarioTotal Decoupling Scenario

% Change of Factor Prices

Dependent Labor0.05

Farm Labor-0.57

Non Agricultural Capital0.07

Agricultural Capital-4.45

Land 18.27

69

SAM SAM of Non Professional Farm Household of Non Professional Farm Household TypeType

SOCIAL ACCOUNTING MATRIX – NON PROFESSIONAL FARM HOUSEHOLD TYPE

Sectors Factors Land Family labor

Family Other

incomes Leisure

Domestic good

Market good

Economy Total

Sectors 5225 5225

Factors 3411 3411

Land 937 937

Family labor

877 877

Family 937 877 1660 3728 1829 9031 Other incomes

1660 1660

Leisure 3728 3728 Domestic good

1829 1829

Market goods

2530 2530

Economy 3411 944 2530 6885

Total 5225 3411 937 877 9031 1660 3728 1829 2530 6885

71

Main features of Non Professional and Main features of Non Professional and Professional Farm-Household TypesProfessional Farm-Household Types

Non professional Professional

number of observations 309 947

farm dimension 6.34 15.27

Family size 3.32 3.86

Number of children 1.10 1.50

on farm wage 4.62 10.38

off farm wage 8.15 10.25

input demand in share

hired labor 0.07 0.08

material 0.17 0.29

chemical 0.06 0.07

capital 0.36 0.20

land 0.18 0.16

family labor 0.17 0.19

production in share crop production 0.40 0.40

beef production 0.20 0.25

milk production 0.04 0.23

fruit production 0.37 0.12

income

full income 9031.56 16391.79

saving 943.82 7950.13

total cost

cost 5224.81 13941.78

72

Micro-Simulation Micro-Simulation Variables of Interest Variables of Interest

VARIABLE INPUT Hired labor Chemical Material QUASI-FIXED INPUTS Capital Land Family labor on Husband Wife OFF-FARM LABOR Husb. off farm lab Wife off farm labor OUTPUT Crop production Beef production Milk production Fruit production TOTAL PRODUCTION COST SHADOW WAGES On farm wage Capital price Land price OFF-FARM WAGES INCOME AND SAVINGS Full income Off farm income Domestic income Leisure value On farm income HUSBAND AND WIFE CONSUMPTION Leisure Clothing Domestic good Food Other goods

73

Intra-hh Allocation Matters: Intra-hh Allocation Matters: from 0.46 (husb) to 0.5 shift in the sharing functionfrom 0.46 (husb) to 0.5 shift in the sharing function

base simul var% VARIABLE FACTOR

Hired labor 107.418 111.096 3.424 Chemical 0.888 0.813 -8.427 Material 2.265 2.115 -6.648

QUASI FIXED FACTOR

Family labor on 221.037 177.256 -19.807 Husband 148.905 119.411 -19.807

Wife 72.132 57.844 -19.807 OFF FARM LABOR

Husb off farm lab 9.426 8.972 -4.815 Wife off farm lab 13.13 38.685 194.637

OUTPUT

Crop prod 104.444 99.602 -4.636 Beef prod 6.277 5.88 -6.328 Milk prod 27.301 26.043 -4.61 Fruit prod 19.197 18.659 -2.804

SHADOW WAGE

On farm wage 9.762 11.589 18.715 FULL INCOME

Full income 14508.76 14785.011 1.904 Off farm income 261.4 552.299 111.285 Domestic income 1960.3 2041.535 4.144

Husband 789.92 903.852 14.423 Wife 1170.38 1137.683 -2.794

Leisure value 3398.9 3499.282 2.953 Husband 1582.69 1754.909 10.881

Wife 1816.21 1744.374 -3.955 On farm income 2157.76 2054.215 -4.799

Husband 1453.61 1383.855 -4.799 Wife 704.15 670.36 -4.799

HUSBAND CONSUMP

Husb expendit 3870.07 4281.716 10.637 Leisure demand 0.409 0.41 0.221 Cloth demand 0.003 0.003 -2.237 Domestic good d. 0.204 0.211 3.422 Food demand 0.156 0.152 -2.334 Other good dem. 0.227 0.223 -1.834

WIFE CONSUMP

Wife expenditure 4484.68 4285.635 -4.438 Leisure demand 0.405 0.407 0.505 Cloth demand 0.003 0.003 -2.006 Domestic good d. 0.261 0.265 1.721 Food demand 0.135 0.132 -2.359 Other good dem 0.196 0.193 -1.681

74

Modelling a Labor Market Failure asModelling a Labor Market Failure asa Mixed Complementarity Problema Mixed Complementarity Problem

0___ onwageoffwlabFS ggg G = wifehusband ,

Where: 0_ glabFS if onwageoffw __

0_ glabFS if onwageoffw __

PROFESSIONAL: observed wage gradient

w_off < wage_on → FS_labg = FS_labg0 (Upper bound) w_off ≥ wage_on → FS_labg < FS_labg0

NON PROFESSIONAL: observed wage gradient

w_off > wage_on → FS_labg = FS_labg0 (Lower bound) w_off ≤ wage_on → FS_labg > FS_labg0

75

Modelling a Labor Market FailureModelling a Labor Market Failure::Professional Farm Household TypeProfessional Farm Household Type

PROFESSIONAL FARM HOUSEHOLD TYPE

Variable Description Base w_off decrease w_off increase

Husband w_off Off farm wage 11.450 10.000 15.000 wage_on On farm wage 12.746 12.746 15.000 w_lei Leisure value 9.555 9.555 9.555 w_dom Domestic wage 9.555 9.555 9.555 hours_off

Off farm labor Percentage variation

3.672

4.363 (18.805%)

19.749 (437.736%)

FS_lab

On farm labor Percentage variation

140.392

140.392

114.189 (-18.664%)

XD_leis

Leisure demand Percentage variation

158.185

157.860 (-0.205%)

162.924 (2.996%)

XD_dom

Domestic good demand Percentage variation

82.440

82.074 (-0.444%)

87.827 (6.535%)

Time Time constraint 384.689 384.689 384.689

Wife w_off Off farm wage 11.450 10.000 15.000 wage_on On farm wage 12.746 12.746 15.000 w_lei Leisure value 9.277 9.277 9.277 w_dom Domestic wage 9.277 9.277 9.277 hours_off


10.999

11.803 (7.310%)

11.302 (2.753%)

FS_lab


64.696

64.696

52.620 (-18.664%)

XD_leis


191.863

191.441 (-0.220%)

198.037 (3.217%)

XD_dom


130.986

130.604 (-0.291%)

136.585 (4.275%)


76

Modelling a labor market failureModelling a labor market failure::Non Professional Farm Household TypeNon Professional Farm Household Type

NON PROFESSIONAL FARM HOUSEHOLD TYPE

Variable Description Base w_off decrease w_off increase

Husband w_off Off farm wage 8.150 4.800 8.500 wage_on On farm wage 5.985 4.800 5.985 w_lei Leisure value 9.555 9.555 9.555 w_dom Domestic wage 9.555 9.555 9.555 hours_off


38.675

36.952 (-4.455%)

37.423 (-3.236%)

FS_lab


92.135

122.797 (33.279%)

92.135

XD_leis


188.490

173.615 (-7.892%)

189.127 (0.338%)

XD_dom


83.312

69.248 (-16.880%)

83.927 (0.738%)


Wife w_off Off farm wage 8.150 4.800 8.500 wage_on On farm wage 5.985 4.800 5.985 w_lei Leisure value 9.277 9.277 9.277 w_dom Domestic wage 9.277 9.277 9.277 hours_off


28.528

40.760 (42.878%)

27.220 (-4.584%)

FS_lab


54.399

72.503 (33.279%)

54.399

XD_leis


207.762

190.341 (-8.385%)

208.510 (0.360%)

XD_dom


111.366

98.451 (-11.597%)

111.926 (0.503%)


79

What is next?What is next?

IMPROVEMENTS ON THE MICRO-MACRO LINK:

MACRO: 11 hh enterprises where production and consumption

are non separable 23 production sectors for each type

MICRO: 1 HOUSEHOLD – 1 SOCIAL ACCOUNTING MATRIX (SAM)

so that we can have a fully implemented econometric micro-simulation with the advantage of simulating participation choices and other corner solutions more effectively

REGIONALIZATION OF THE MACRO MODEL: Regionalization using a bottom up approach aggregating the household SAMs at the intermediate macro level

80

ConclusionsConclusions

(1)The Micro-Macro link can be successfully built if the developers of the micro and macro models work closely in the phases of model and survey design within the same institution so that the micro-macro correspondence can be effectively incorporated

(2) For a sound micro-macro link to be established macro models should be micro-fundated and micro models should be macro related using exact aggregation theory

1 a general equilibrium analysis at the economy and household level: an application to italian...

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