GTAP Resources: Resource Display
| GTAP Resource #1586 |
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"Rethinking the Supply Response to Market Reforms in Agriculture: Household Heterogeneity in Village General Equilibrium Analysis from Mexico" by Dyer, George, J. Edward Taylor and Steve Boucher Abstract Governments in less developed countries (LDCs) have often been frustrated by agricultural households’ apparently perverse response to policies. Economists have gone a long way towards explaining “hidden” motivations underlying household responses. However, economists have often had as much difficulty as government officials in predicting responses to agricultural policies. The basic premise of this paper is that heterogeneous micro responses and interactions among actors in a general-equilibrium context shape the outcomes of policy changes in developing rural economies. Although others have suggested that heterogeneous access to staple markets isolates some rural households from price changes, we believe that interactions among households through multiple markets ensure that no rural household is entirely unaffected by any given policy or market shock. Such interactions can help explain heterogeneous and sometimes contrasting household responses that lead to apparent unresponsiveness to policy shocks in the aggregate. We integrate 48 individual agricultural-household models into a village-wide computable general equilibrium (CGE) model to illustrate the role of interactions among heterogeneous households in shaping supply response. We show how market shocks are transmitted into a mostly subsistence economy, subjecting different households to different sets of indirect influences and generating household-specific responses. We then describe how these responses affect the aggregate supply response. Simulation results suggest an explanation for unexpected impacts of maize-market liberalization on the staple supply response in the context of the North American Free Trade Agreement (NAFTA), including the role of local commodity and factor markets. In Zoatecpan, a community in East Central Mexico, we find that differences in land endowments are critical in explaining contrasting responses to maize-price changes, with some households reducing maize production and others expanding it. We suggest that in some regions of Mexico the responses of maize growers to recent policy changes have largely cancelled one another out, leaving the impression of a lack of responsiveness to reforms. |
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- Agricultural policies - North America |
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Public Access  PDF Version (94.7 KB) Replicated: 0 time(s)Restricted Access No documents have been attached. Special Instructions No instructions have been specified. |
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Last Modified: 8/11/2025 9:05:27 AM
