An economic model of the Ethiopian farm household

This paper presents a simple model of an Ethiopian farn household which captures three important aspects of the policy regime characterising the Derg period. These aspects are compulsory grain delivery, rationing in manufactured consumer goods, and rationing in modern farn inputs. The model involves two main innovations with the agricultural household modelling framework. First, a new procedure of analysing the impact of the policy of forced grain procurement is introduced. The procedure enables us to directly characterize the effects of that policy on farm households’ welfare, as well as the production and consumption choices they make. Second, it pulls together various strands of te relevant literature in a simple manner. In particular, it provides a more direct way of determining the welfare effects of rationing, compulsory grain delivery, prices and incomes. Both individual and joint effects can be handled this way. The comparative static properties of the model directly show that forced grain procurement by the state reduces the welfare of farm households and distorts their production choices. The results also indicate that shortages (rationing) in manufactures consumer goods and modern inputs make commodity demands, input demands, and output supplies less price responsive.