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Extra info for Agricultural Policy and Trade Reform, Potential Effects at Global, National and Household Levels
Global Market, National and Sectoral Impacts perfectly competitive. Additionally, producers are assumed to behave as if there were no uncertainty even though, in reality, policy change will carry with it changes in exposure to risk, an issue that has been explored in recent OECD analyses of the effects of risk in the context of decoupling. Moreover, the model does not address implementation and adjustment costs which may accompany policy change, especially policy change in a developing country context (Charlton and Stiglitz, 2005).
However, GTAPEM allows a more specific treatment of input and land payments than does AGLINK. For example, if a particular payment alters the incentive price for an input or category of land use, then a price wedge is introduced into a GTAPEM equation linking the demand and supply price for that particular input or land category. In the policy reform scenario these price wedges are halved leading ultimately, through simulated market clearing processes, to reductions in the supply price and increases in demand price of the associated input or category of land.
Implicitly this assumes that world commodity markets are stable in the sense that prices, quantities demanded and supplied will all adjust smoothly to their new market equilibrium levels following policy reform. This assumption of stable world commodity markets has been questioned in recent analysis by Gérard et al (2003). Because GTAPEM represents determination of an economy-wide equilibrium its equations constitute a complete system of theoretically consistent supply and demand relationships.
Agricultural Policy and Trade Reform, Potential Effects at Global, National and Household Levels by OECD (Organisation for Economic Co-operation and Development)