The Use of Extraneous Information in the Development of a Policy Simulation Model

A number of highly aggregated policy simulation models have been developed for the U.S. agricultural sector. While these models are useful in providing broad-stroke sketches of the effects of alternative farm policies, they have been criticized for their lack of commodity detail. Individuals, organizations and congressmen from a cattle producing state, as an example, are more interested in the impact of a changed agricultural policy on cattle prices and incomes than its effect on the income of all farmers. The reason most often given for not disaggregating by commodity groups is the researcher's reluctance to quantify opportunities for substitution among commodities in production and consumption. However, there may be more agreement on the relative magnitudes of supply and demand elasticities for individual commodities than the price elasticities of supply and demand for all farm output. Hence, a disaggregated model may distort reality much less than a highly aggregated model and at the same time provide detail on indirect effects of proposed policies that is so often sought by policy makers.