The microeconomics of distribution: A simulation of the farm economy

Abstract

A simulation model that incorporates both production and consumption behavior of farm households in Taiwan is presented. The model is used to analyze the effects of policy instruments (price supports, minimum wages, taxes, subsidies, demographic policies, and land and capital redistribution) on the aggregate values of the endogenous variables of the system—the supplies of output and labor, the demands of factors and consumption, income and expenditure—and their distribution among households. The model differs from other simulation models in that it is based on microsimulation, in which the joint distribution of individual household characteristics such as farm-specific prices, initial endowments of land and capital, and numbers of workers and dependents, is explicitly taken into account. As a result, the model is capable of capturing the distributional as well as aggregate impacts of policy changes.