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
                Concluding Comments  ...............................................................................................189
           XIII. THE PRACTICE OF AGRICULTURAL POLICY ANALYSIS ..........................190
                Framework for Agricultural Policy Analysis ..............................................................190
                Effectiveness o f Price Policies ...................................................................................191
                Linkages between Macroeconomic and Agricultural Price Policies ..........................192
                The Policy Analysis Matrix ........................................................................................193
                Price Policy Graphs  ....................................................................................................196
                Concluding Comments  ...............................................................................................196