DRDOS


I n t e r n a ~ i o n a lBar.'< f o r Rec3nstruction
                      and LIevelopo;e4r:




                                                Development Research Center

                                                      Discussion Papers

                                                               No. 5

                                POLICY ISSTRUMENTS L U D PLA??TNlNGMODELS FOR

                                                    INCOME DlSTRIBUTlON




                                    Montek S. Ahluwalia and J o r g e Cauas




KOTE: Discussion Papers are preliminary m a t e r i a l s c i r c u l a t e d t o st ir.1~1'i                    L C
             d i s c u s s i . ~ .and c r i t i c a l c o m e n t
                                  ~                              .  References i n p u b l i z a t i o n t o 1);s-
              cussion Papers should be cleared w i t h t h e a u t h o r ( s ) t~ protecr                    t t ~ t .
              t e n t a t i v e c h a r a c t e r of t h e s e papers.

December, 1973                                              raft
                                                           Kot t o be quoted
                                                           Comments welcomed




           POLICY INSTdUMENTS AND PLANNING MODELS FOR

                       INCOME DISTRIBUTION

                Montek S. Ahluwalia and Jorge Cauas*



    I. 1ntroducti.on

  11. Available Instruments of Policy

111. Broad Strategic Choices

  I V . Available Planning Models

    V.  Conclusions




*This paper was presented a t a joint I n s t i t u t e of ~ e v e l o ~ m eStudies
                                                                             a
 (Sussex) -  Development Research Center (IBRD) Workshop convened a t the
 Rockefeller Foundation Conference Centre i n Bellagio, I t a l y , i n Aprii
 1973.

     POLICY INSTRUME?STS All3 ?LPJI(?IJING MODELS FOR IXCGME D I S T R I B U T I O X




                  W e S e g b w i t h t h e recognition t h a t t h e p r o f e s s i o n at l a r g e ha-

i n recent y e a r s displayed i n c r e a s i n g s c e p t i c i s m about t h e v a l u e ( o r Imre

s t r i c t l y "ilsefulness")          o f planning m d e l s i n general.                 The reasons f o r

t h i s s c e p t i c i s m a r e too w e l l known t o b e a r d e t a i l e d review b u t it is

worth n o t i n g t h a t t h e schism is n o t l i k e l y t o disappear i n t h e n e a r f u t u r e .

l'he sceptics base t h e i r case on two propositions.

                   (i)istingrealityespeciallyateconomy-widelevelsisfartoo
                             m

                             complex t o b e captured i n t h e s t y l i z e d a l g e b r a i c fonr,ula-

                             t i o n s o f economic models.

                    ( i i )  The a v a i l a b l e s t a t i s t i c a l i n f o r m t i o n i n mst cases is too

                              poor even f o r t h e demnds o f e x i s t i n g "simple" models l e t

                              a l o n e   anything more a n b i t i o u s .

        ,do - ;opositions             trikcr. topether ?;educe a natural %zip-issesince any

attempt t o develop m r e general models must n e c e s s a r i l y p l a c e even g r e a t e r

st rain on the s s a t i st i c a l inf;astructure.                     This e s tab1.ishes an immediate

d i s t i n c t i o n between academic nctvances i n c o n c e p t u a l i z a t i o n , b!~ich w i l l
                           -
                           -
 l r ~ c v i t a b l ybc.$n   t h e dircct.ion of mre s o p h i s t i c a t e d models of t h e general
                          L


 ~ q c i l i b r i u mtDe and t h e o p e r a t i o n a l usefulness of tl-~eseadvances i n
                          e                                        11
 providing t o o l s f o r p r a c t i c a l planners.-

                    These p r o b l e m would be s e r i o u s enough i f w e were i n t e r e s t c z

 only in the t r a d i t i o n a l questions of economic p o l i c y such a s output grohyh,


-L/     This d i s t i n c t i o n is n o t of course c l e a r c u t .             P l a n ~ i n go f 5 i c e s may b e L ;
be i n t e r e s t e d i n very g e n e r a l modeis t h a t s t y l i s e broad "growth stratcG;e:,                 .   I 1


b u t what is lacking i n economic planning is t h e a v a i l a b i l i t y of o p e r a ~ i c n -
a Lly u s e f u l models t o actermirle speci t i c p o l i c y choices.

                                                                      - 7 ,
                                                                         -

         -        --.----
     CL--,aLilL.-~rt:               i&;s~;z3e, C ; I - = - ~ ~~~-;I<cLc.c~;,Tszy b e ~ ~ - =
                                                                      C               ~ L C .                     even m r e

        ,,. A H . rw5en ue~
              c   .-,-"                e ~ t      inclace ctj.=,siderLt:ozs of incoffie d i s t r i b u ~ i s n~?teze

                          - - -..--     -
                               &..,a                                                             of t h e ~ ~ d e r l y i n g
     .LL-L       -.+.                   125s i i g r e a a c on che zccc?ta'sil:ry

    .                          ir is n s t sur?ri5Lnj t:-,ersforc L T 5.e ~ t t z q rso b;li.lL 2le:lnlng

                                                                           ..
     :.sccls ;o teal ~5tk                        ~2srr;-;>u;ic;?        ~rcsie-aLeads        LO    che obvious c r i t i c i s n

      -.-L;            i.:c  &re rryi-g to KL- before we h ~ v elczrned t o walk.                              Tne 2olnt of

         - .
      r : ~ s crlziziszi is rist: t o ceny the iesira3FlIqr or' cqer5ir&ntin&.zit5

      rl..r;c;va;isre              pzototype m d e l s wTlic6 try tl; encogenize income 6-istzibction.

     -?,;e'.-.er LC Is r o r e c s : g i z e t h a t t h e a p - , l ~ c a b i i i ~or' such izodels i n
                                                                                                 y

      * ~ - & c c i c aplansinlj e>:&rcises In the ncs-: k t - u r e is bo-dnd t o be f a i r l y l7Ln;;ed.
                                   l


      ;,lcrtrecl            It ;s,y e-flex 542 arz~edthar it is ccm~crprod;ictive. Try-xg ro m:

     ,eiore we :lave learned co walk zry he cctireiy cormendable i n the L.tceres;

      of long tern stfile.tic devclopnent, h l ~ tI n che interim it is probably nor.

      the b2st way of gert:ng                            fron 11 ro 131

                                 i i e -ryri.y; ;lui?o,.ie    oE this pnpcr is :o           suggest a framework f o r

                                                      ,           - .
                                                                              r
      t . . , / . i :  unLirlg 2hs ?OCL.:i ;:i;.:.        IIPELUI::C.'~S    r l ;::e  ;i\'3$1 : j b l ~ :and p r ~ s y f c t*,,:. ?

      .i~:~-;nir,g ~ ~ o idn ~proviaing 2 0 i . i ~~;c~L'T.c~ r planners c o n c e r ~ c dwi:'.7
                               ~                   l s                       ~            f o
                             Li


       ,r.i-i-l;:~.         dLs ; r ;,.,c ~ t<icn sii? <?;:,;:?o~?~~~i.t_ nS jectives.       One way' orF Lot.;.,;; tnis t s           L O


           ~.:.~ii;.r          i'?hzE t3t:: ";;lc.;:i.    :i..:.rr:. 1,;. y,,it:i."s11oul.d b c a n d wjc :-:;i.;
                                                                                     -                                  ns a

                                                                                     i
-               .    ..    o     i            1 ,   J     1      ;      .  . . 2.   :&ggcsting pr;.,: :.ical r~~~en'sio:;;,
                                                                                    L

f o r ~ i v e xvarces of the azozenoxs variables acd 2olicy varizbles t o yizld

IIx c o w distrij:rtion" AS a function of ci-.ese varia'cles.
  -
                                                                             Xore & i t i o w

m d e l b c i l l e r s d g h t zver. hope chat sucn a model caii be reczsr LT a 02-

rimising f r z e w o r k zs a c m t r o l 2:leory ?rabl'~-n af Zezeni?icg          o ? t h m t k e


par:-     f o r t h e policy i;l~~DLi!l!Zni~(control variabies) given soiiie objective

 fuiiccio;?.      Providiiig ye have cocp-cehensiveiy i d e n t l i i e d and iilcluded a l i

availabie policy i n s t r m n t s , plan ixpleixntation would simply be a

n a t t e r of mking these instruments follow t h i s optimal t i m e path.

                It is obvio~sthat we are a long way from even formulating such

 "5leal" m d e l s l e t alone estimaciag them successfully f o r pracrical appi5--

 cation.       In practice we have only the f a x i l i a r cro;, of ecoAor- wide input-.

 output models and lir'ear prograimixig models (both economy wide and sectoral)


 10  work with.          How f a r do these m d e l s get us i n developing appropriate

 policies for employment and incone distributior,?                    It is easily seen that

 zhese models f a l l corsiderably short of the "icieal" an two grounds.

                  (L)     Kiesi -rr.odels do r,ot Serxra'ie income distribution i n the

                          sensc 02 A srze ~ i s z r i b c t i o nof income.  k t b e s t they can

                          handle t h e problearof fcnctional income distribution and
                                                                                                      I  r


                          then too on very rcs t r i c t i v e ass7m.pcions.

                  ( i i ) In general these rnodels l o not c x p l i c i t i y incorporate Lhc!

                                                                                            '
                                                                                            ?
                          e-ffeczs c l the fc11 r;nl,e      sf avaiiajie o l i c y v;ri~?fcs.

-- -         i c ~ (1i i ) relstes p r e i y            LO    inco-;rjo.-zci?g          the effeces of 20iicy


-,.ariables g.Iven a theor,, r-;                d i s r r i b i r r i o a t o d e t e d - , e f a c t o r p r l c e s 2nd

e q l o ~ p z n tlevels.            Ynis :r -,arentiy t e c E ~ . i c i lproblem is t o t however a

" s k p l e l ' p r s b l a given t h e wile v a r i e t y of policy i n s t r m e n t s ckzt 1s




         Available I n s t r m e n t s of P o l i c y
7-
LL.


                   I n this s e c t i o n we w i l l L attenptl t o c l a s s i f y t h e mar~yp o l l c y

v a r i a b l e s t h a t are suggested by c~nvcn:Lonal wkdom as p o t e n t i a l insti--&-

-z.ents of income d i s t r i b u t i o n .           h r basis c;f classifLcation is t o group pol-icy

I n s c n z e n t s accordii~gr o the pcir,t of d i r e c t inpact of rhesc p o l i c i e s wit?Ln

~2 i m p l i c i t framework of              general equilibrium of the econoizy.                            Thus a l l

2 o l i c i e s a f f e c t i n g f s c t o r ?rites r.ac b e c l a s s e d t o g e t h e r a s the f e z s i b i e

set of factor rarket i n t e r ~ e n t i o n s . Xi~Eoughi n i t i a l l y dtrected a t factor

riirkets, such i n t e r v c n t i o r , ~obvicusly a f f e c t e s n p i o p n t i e v e l s , productio;~

;)clLrrclrr:s,     outgut p r i c e s , ecc.,         and i t is throu@. a l l t h e s e e f f e c t s :; a t




 :,aced.         ~ b ~ i scls..,sii;icativ
                              '                   sclienc enz5'3les IS t o focus on '*~arkets"o r


 r c ~ , l t i o n s h i p st h a t.;i-LG   rz) 6 2  L-  .cSc,2~         r a t h e r t'hafi tfie p r e c i s e ? o l l c y i;;:,tru-

  , -, 1.q   vkc;ea        effect . .-           T i a ~ ; - ~ i . ~ ; ,~.:i.ls.5re a e c c s s a r l l y. aggregated
                                                                    :-.<-

z-;rXst is cezsrnined zke ?recise deslgn of ?oiicy (choosing between                       -
~lcerna:ive i-strcr.ea=s) ten be worked our i n s o ~ ed 2 t a i l .                       rour arezs


of iztervention ca;l be d i s ~ i n g u i s i ~ ecorzesprdlng t o the generai equiiib-
                                                         d

rlur. liiikage from (1) iiactor prices chro-~gh( i i )                    ~ e r s o i l a li n c o ~ sdererzixrtion

~ t j - x t eflo r ( i i i ) talc Lncidesce ro jiv) tezsnd ?atcer=,s arid o u ~ p i l t2rices ,,:zich


a r e consistezit with t3e factor 2rices.                  To rnese we add a f i f t h area              --  -l u b i i c

a p e n a i r u r e ?titterns    --
                                 .
                                   --A

                                       wnich com?letes rhe piccure.



                    (i) DeteninLng Pactor Rewar&:

                   A w3-ole range of government policies influencing "?rice ceter-

  iriination" iii t h i s f i e l d can be l i s t e a :     various forns of taxes on labor

  use; subsidies t o copital i n the foim cf " tax holidays" , depreciation

  allowances and i n v e s w n t allowances; government intervention i n wage

   policy both in the private s e c t o r throcgh m i n i m wage l e g i s l a t i o n ant5

   i n the ?&lie sector f n r o u d ~d i r e c t wage detemination.                     Wage policies are.

   frequently implenented on "dis tributlonal grounds" with l i t t l e attention

    - -  '.tLLrelative price iqlicaticn:; Tcr eq,loynent levels 6.c the " C O S ~ pusi-i"

    -..., i ~ ~ c ~ i foonr sicLl;~io.~.These c,uestions csn ~ n l ybe examined i n ?:&inis&

   rnolels which incorporare r e l a t i v e p r i c e d e t e n i n a t i o n and p e r n i t some scope
                  I  r


   f o r factor substitution.


                   ( i i ) DistriSution of 'Inca            ]Caning & s e t s aiid Fnctorr; over

                                                                                                         -
                           P o p - ~ l nioc:
                                        t

                   GLven fr.c:o;       ? r i c e det~rr~i;lzr;o-na;.d c;r;rsl.oy;ilci-L~ :eve-:,. -  r o p e ~ c i - ,
                                                                                                           _
                                                                                                         I
 :!c,e a;- ;&cCjr ;EL ,:;e =-c;;;o; of eat-, a s e :
                             - .                                     i=;:,-J,c L<sx--ai..->c--%0-- .
                7                                                                            ..
                                                                                                 I     .       -L1.C.-.i
                                                                                                                *  > L

, ; l ~ c ~ ~ ~ . a=os sz?.e -&LEI
                     r                   d ~ ~ ? c - ? i ; l boil L-,s tL=.it icsal tharzcteris t5cs and


G Z P L E ~i ~ c t o r s . Ccnvestlozai wizcoz scggkscs s e v e r a l ways irLwhL&

& o v e r a n t ~ a l i c ycar, ar'fs:t           ctese pzr^ie-r;ls by d i r e c t s c r i m .   - % 7 ~ 0 ? r ~ . i ~ i ~ n

                                                                                                     .- -
-21 ~ i c > z rcoliecci-;lzzt;on               o r r e i l s t r i b u ~ i o r ,U; assets Is      --.
                                                                                                  Lc.C;ia~

    - -                              --
;a;lcy       a;te,-;la~"ivc.         it S a ia-zilia~reeczzx!ndation in agriculture (lasd

re2om) but iz 2s also v i a b l e ic i n l u s t r y zl~hougfiin the i a t t e r "radist~;-

-     -
2atlon" is i a r l i y i e + s ; j ~ e ,x~d the choice is niorc liirely ro be

x a i i o n a i i z a ~ i o nOT " s o c . ~ ~ i i z a t i ~(the Yugosliiv pattern) o f capiral.
                                                                n "

                  Less r a a i c i l z a s u r e s with ;; ;cr,ger             time pattern f o r effective-

ness are property ta:es and inherit?~.-rtetzxes, both of which a r e nlininalljr


effective i n nost countzies.                        Even less T C Z ~ C ~ a; r e measures designed to

i,iri,rove the d i s t r i 3 u t i o n of skills (and consequeiltly earr,ing pacer) i n the

7 o p l a i i o n by expanding education and training progranls.                            ?his I s a far;il$zr

 cornerstone of e q l o ~ p n prot-otixg ;Jrograix, and one t h a t w e w i l l un-
                                             t

cocbtediy hear about                 511 any discussion cn f n c m distribution.

                    (53%)     D L s y r s h LC   :;I!  ~ 1 r . e2 e 4 - -+-.!
                                                                         -r~~~.ztior.:

sig..ificzzce        a t ecrllirr szzges -.,-Lere b.?ien%s;dtion p r o 3 i m a r e pz-rcL-

                                 --
cuiariy izqoriazt.               a suz5 s;rcu=star.ces               c a evzsiaz a o c g high iilcozz

groups ;ley hzve t o 3e a c c q c e l zs an " i r L s t l t x t ~ c n econscrain~". Zie
                                                                                   l

=race-o,f       - s u a l l y s s o c l a z e L wzti. -&ls policy -relates             LO "'   lncentlves"


-       Iy      32 aclvsrsely ~-fscr,e6 s u c c ~ s s ~ %tax policy ZFsures.
                                                      by                  i                                Scce

,:?at I 5 :he e c o n o q is c ~ c s e df o r f a c t o r mvesents (an iixporced a s - ~ i i o n )

the incentives q w s t i o n relaces e s s e n t i a l l y t o t h e work- leisure choice

and this m y nor b e very ser;ou                       i f t z x lceasures and iriplenentaticn z b i l i r y

a r e u n i f o n f o r a l l categories of econouiic a c t i v i t y .

                 Zi;practice i q l e n e n t a t i o n capability in different sectors is

widely different and this i n p l i e s t h a t increased reliance on tax nieasures

inevitably introduces i n t e r s e c t o r a l distortions which nay be serio-iis.                             X?e

c i a s s i c example of t h i s probleui is the s i t u a t i o n where the only ins tit.^-

t i o n a l l y feasible tax n2zs-ares amunt co t z e s on e q o r t s or iinporrs.

                 (CV)        C ~ i x o L i i y? r i c e r)eterizinclt5cii:

                 ?-.
                  :nc whoie razz oi c;o;r;cstic tsxes and su'3sidies oa ?roluctlc\r/


c m . s ~ ? : i o n and t a r i f f s on iz.,joztea g o ~ d snsy b e c l a s s e i as p r i c ~;i,~cr-

ventions in the c o m d i t y -;arkets together with the p r a l l e l s e t of
              L                                                                         ,    t

quantitative r e s t r i c t i o n s wnich can be treated as discontinuous ?rice

                                                                    -
interveation.             Thcse taxes and quantitative restrictions h,ive both In

I I-
   mcone" e f f e c t (reductian o r tncrease o>z:cai                      i i ; ~ u ; i ~ s ~j s :rcla: LV\: ?:-cr-

':x-,;rdc:    xza-s" u;-.icr! are ?robably l e s s efflcierit than direcr: i z c t o r price




            ?ub;rc      z ~ ~ e r , c i r u zis t h e collective 2 o t e n t i a l 5 g n s f i t r s s u l t i n g
                                                 e

                        .     .
::,,3direct a-lc Lnclr~c:i&:<ationaiid 9tk.er ;ovzrnzenC revsnces.                                  T'r.3


k:s ~ r i b ~ ~ i o i -i-zapio r i z ~ - c eof ? ~ b l l cerc:>er-diiure s teas f r o s rwo c o n s i l e r ~ c i o:~ s

             (aj    It -is a very large znd i~susiljrgwoking pro;,artion                        of G3P

                     coapared t o ti-.e snare o l 1me: income grox?s in t o t i i

                     incoze.           T n c s , whereas p b l i c e w e n d i t u r e ray accouat f o r

                     1'1 to 25 ;ercent of GD?,                   the sharz of income accrui:lg .io

                     t h e  l o v . 2 r f 3 7ercc.n:       i n GDI'  i:.a;r =Inry 5ctwee:l 8 dnd i 5




                     -isprov,:ns::.:         i:.  i:h(i.-:clf.al-i: ie':ei   of :his  grou;, can 'je
                                                              L!                                                        .
                                                                                                                          I

ircplications.          In a si-cuatfon where public resource mobilisation is zn

importsnt constrzint, t h i s poses an obrious problem oi' choice betxeen

the two categories aid also of course within t h e two categories.

                Given this wide v a r i e t y of areas of intervention, t h e problem

facing the p r a c t l c a l pl.anner is t o devise a framework i n which the r,et

effects and r e l a t i v e merits (including complementarities ma contrzc5ictlons)

of intervening a t particular points can be evaluated.                The purely " t ~ c h -

n i c a l response" to t h i s is t o build bigger and b e t t e r models which attempt

t o endogenise a s far a s possible a l l relevant inter-act,ions i n the ecozomjr.             L/

3 ~ c ha model would obvious1.y enable us t o experinent xit.h the e f f e c t s of ELI-

ternative                 policy ins.yrwnents on income distribution b u t as we have

stated before t'kis "ideal" is uqattainsble f o r some time t o cGme (certain1.y

f o r the v a s t majority of unierdeveloped countries).            In practice we hsve

a r a g e or' l e s s powerL%l anal.ytica1 tools which help t o quzntify ~ s r t i c u l a r

choices but not i n any a l l inclusive frame-mrk.              In such a wcrla a s t r ~ t e g y

for income distribution involves two kin& od decisions.


          i         Chocsing broad areas     0;'intervention as aiscussed above izrgcl;.

                    Gn a non-formal    consicerations

         b          Using available p l a n i n g models t o illuminate particular trzde-
                                                                           4
                    o f f s and policy alternatives within the very broaa strategy

                    Informally defined

in the next two sections we discuss brie?ly soce of the rroblens anc ~ossi'r11it~4,zs

i n both f i e l d s .



-
1/     See for c x q l e the Faper Jn "Ir,corporatin,; I 2 c i a i anc Politics1-
V ~ r i a b l e si n t o Zquit:~Grier.ted "uveelpment Plardning"   , for sl oisccsslx-.
of such " a l l Inciuslve" mocelling.

-I.L. 3r3td S-,ratez.c Cho5ccs
--"F




                  In L i s section, ws will 6iscucuss             S C Z ~ 0; the c c n s i d e r a t i c ~ s

sr,at a r e r e i e v m t I n c'r.ocsiag a "s7,rhtegy of incoze cistribution'!, i.e.,

ckooslr?; mong the varioxs kreas or' interveniion l i s t e c LDOVP,.In che

zbsence or' a f0'onr;ilcodel t?.ese choices nust be made or, zn in;'omal 5 z s 5 z .

LY t k 3 s contw-r, iz i s use-'*;          >G  distinguish betk-een two polar q p s i t e s k~-I

zem.s or' policy approach.                The two approa&es follow from t h e two key cc:.;-

-,,on.~r.=rof the aeterminaticn of "income distribution" i n tne ecor,o:mic
.,-                                                                                                     s.,.ster.

Yne Yirst ol" chese i s t h e eetermination 02 factor rexards ma emplo-ment

levels Tor factors.             Tqiz is wnat economic theory c a l l s the ciistri'bution

c;" 1r.ccne (into i;r~tors i ? x e s ) a d l n the neo- classical irancwrk it wcuia

kc: affected S;r the whoie r a g e of 2olicies d i s c ~ s s e ai n ?I ( i ) a , l i i (v)

aScve.        Tne second l i n k i n the cnain is ~ i distribution of ificcme e u n l n g
                                                                 ~ e

csset:;      ar,d factors over the ~ ~ : ; i a t i cwhich deternines the s i z e oi' 5 s -
                                                          n

 tribution of iricone.           We szy c h a r ~ c t e r i s eincome a i st r ~ \ u t l o nstrategies

a s aimel? e l t n e r a t a l t e r j n g tilt. ais tribution or' assets c r zf affecting

esAT.ln~sand emplojment levels.

               (1) .;:;set &cii:,ri?il tlo3 : Yr.e k ~ 1 c . dStyate?.:~

              isset, redstri'cxtlcri i n t n e wiccst sense includes not or,l:y ex-
     ,                                                                                                            *
            f

.
.-.- ..;I-3 atlcr, 2s.:: r.'_-.-r:- r,S
                         cc?:e,:             w- a;. redistribution, but also the p:roirision




,.: -
    .
    . ..,.,, :;:ne:rcs i s XIcS-;;~,;c exr~rple.)                                           *
                 I



                                                                          - L               m
               rT
               lne g r e a t &ppe;l    0:' this ap?ror^cr! is thnt/seyz;.ztes            tnk questior.

narkec".           Given a s e t of e f f i c i e n c y p r i c e s i n t h e f a c t o r market, any


given p a t t e r n of personal incone d i s t r i b u t i o n can b e achieved by a l t e r i n g

                                                                                                              11
the p a t t e r n of d i s t r i b u t i o n of income earning f a c t o r s and assets-                        .

Obviously ti-.e change i n 'ncone d i s t r i b u t i o n s o induced w i l l feed back

on e f f i c i e n c y p r i c e s i n a manner which may o r may n o t r e i n f o r c e t h e

e f f e c t s of t h e r e d i s t r i b u t i o n b u t it is reasonable t o suppose t h a t t h e s e

e f f e c t s w i l l be e i t h e r r e i c f o r c i n g o r merely secondary2L.                   The prob1err.s


involved i n t h i s s t r a t e z y a r e mainly t h e " p o l i t i c a l " and"insticutiona1"

c o n s t r a i n t s on a s s e t r e d i s t r i b u t i o n .    W e w i l l not d i s c u s s t h e p l o l i t i c a l

c o n s t r a i n t s h e r e on t h e grounds t h a t a q u a n t i t a t i v e l y equivalent e f f e c t i v e


r e d i s t r i b u t i o n w i l l f a c e t h e same p o l i t i c a l c o n s t r a i n t s whether implemented

through a s s e t r e d i s t r i b u t i o n o r o t h e r m2ans.             The institutional! c o n s ~ r a i r i : ~ "

a r e more important because they a r e s u b j e c t t o p o l i c y a c t i o n within t h e realm




                    By "institu:ional            c o n s t r a i n t s " , we mean c o n s t r a i n t s on the

earning a b i l i t y of t h e r e d i s t r i b u t e d a s s e t .           It is obvious that redistri-

~ u t i n gassczts is n o t enougll i f the earning a b i l i t y of the asset, is S q a L r e d .

Thus land reform may b e k e i f e c t i v e a s an instrument o'f income d i s t r i b u t i o n

                        -
 if other distortions i n the system prcvenL small holder from bc!ing productive.
                        -
                        r
                       '



-11 Note thrEf educat~onalpolicies aimed a t dynanrLc redistribut:ion of
s k i l l s a r e q t r e a l l y r a d i c a l i n t h i s sense.              The r e d i s t r i b u t i o n x i m d nc
is essentialry relative since the total supply of skilled l&or is expected
 t o expand.            The "incot.e d i s t r i b u t i o n " e f f e c t depends t I ~ c r e f o r eon whether
wages a r e maintained                     supply of s k i l l e d labours expands which is c s ~ ~ i ~ t l ~ l i
 a problem of h n c t i o n a l incorrc determination                          .  These p r o b l e m are i ~ . ~ o r : u n t
however i n providing s o c i a l mobility i . e . e q u a l i s i n g access t o enployneat
of p a r t i c u l a r wage categories.


-2 /    A good d e a l of s p e c u l a t i o n and some empirical evidence e x i s t on t5c g r e ~ - ~ e r
 labour i n t e n s i t y of lower i n c o m consungtion.                        'Ihere is a l s o evidence zlriat these
 feedbacks a r e r e l a t i v e l y small i n q u a n t i t a t i v e t e r n .

    h whole range o i i n s t i t u t i c a a l c o n s t r a i n t s are relevant i n t h i s contact-

     education and skill. level of tenant b e ~ e f i c i a r i e sand provision of

     conplemer,i~l>ri n p u t s such as seeds, f e r ~ i l i z e r ,c r e d i t n a r k e t i n g fa c i l i - t i e s,

     e t c . .     It    1;   S~.?ortant t o r e a l i s e t!at t h e c o s t s i~terms of " output

     trade- offs" of pursuing an a s s e t d i s t r i b a t i o n o r i e n t e d s t r a t e g y depend

     c r i t i c a l l y upon t h e ass--:ion                 of t h e " earning a . b i l i ~ r ' l o f t h e r e d i s t i r i b u ~ e d

     asset i n an optimal i n s t i t u t i o n a l framework.                             Undoubtedly, t h e c o s t of

     e s t a b l i s h i n g t h e s e i n s t i t u t i o n s (   0.-    r e f u r b i s h i n g t h e o l d ones) is a p a r t

     of t h e " trade- off" b u t t h e ? r o b l a i n most c o u n t r i e s is t h a t t h e need f o r

     the new optimal i n s t i t u t i o n a l framework is n o t always r e a l i s e d .                              This

     r c s l i s a t i on is growing            i i ~ rural- de-elopmen'c p r o g r a m b u t i t is n o t a t

     a l l evident in p o l i c y f o n i l i a t i o n f o r t h e p u b l i c s e c t o r .                  Sationa1isat:ion

     of industry as we h a - e seen is a "feasi31e1' a s s e t calle.ctivisation po:licy

     with income d i s t r i b u t i o n b e n e f i t s b u t h a r d l y any attempt is made t o ensure

     that these c o l l e c t i v i s e d a s s e t s remain productive on any economic (noit

     f i n a n c i a l ) considcraticins           .     Unfortunately t h e s e "non-essen t i a l " trade.* f f s

     arc Ercquently perpetdated owing t o a r e g r e t t a b l e s u s p i c i a n of "cfficLency"

     concepts mong r a d i c a l rsfom:&rs a t l e a s t i n t h e e a r l y s t a g e s of r a t i ~ c a ,




                                                                                        -
                         'ti:ese. pr?!j'ic:.ti      .:L.,IPS L.   t.ilat a c r i t i c a l r o l e f o r planning mo~dels

                                                                                        -
                                                      .    .                            i

     I.1:   e~AfsluizCirig      asse'; <!is:ri>ar &c,:?           r;rr~tt:&.les         '& io iderrify rile in:;tit.utionnl
-
                                                                                        *P::i1
     nee!-.,       ,:  E ; J , ~ ~
                                r e d i s t r i b u t i ~ n . iSodels w;-,z.;,:                  t o i a c z t i i y key i n s t i t ~ ~ i n r ~ n l
I!
I
     dcveloy,mcnts which z r e ~zr;?!en'cnt~ryto a s s e f                                  T-cii.5~  :;3utlon       and t o izeiltify

     a l t e r n a t i v e "learnin;: p r o c e ~ s c s "1.::            ciciiieving c f i l c i e n c y ir, he cew s e t up,

     fail fn an ir;por;ant sense                        t3   i d e n t i f y the r e a l p r o b i c m with such a h i l - ; l Z + p .

-suaily p o h t t o observed res3Ats w i t h o ~ ta t t e q t i n g to &.fine sl::zr-

natives which were r'easible hut have been .Ip.ored.                         ?ro;lonents of asset

r e d i s t ~ i b c t i o nigrLore " i c a r n i ~ gcoststt     t h e need f o r coqlecentary

inputs.         A ?~ograsair.gapproach t o naticna2-&-kg iil-try                   f o r exarrple

a i g h t show a steeply r f s i i i ~s'naicw price. on skTiled s a l a r i e d ILacagaent

u we noye fron the ?rivsra 20 tke public seccor with s m loss of

"private seczor mwagers".                    iri this m i ~ i r o m e n tTigici wage policies which

l i m i t access t o managers mounts t o incurring unnecessary s o c i a l costs.

                  It should be emphasized that the key problem in the area Is

n o t s o much techniques f o r h a ~ d l i n gthese problem but rather inf ornation

on what kin&- of i n s r i t u t i o n a l systems are needed, L.e., research on

 the production h ' c t i o n .          Tnis conclusion is very similar t o the general

agreement on the need f o r research on a v a i l a b i l i t y of "internediate

 technology" before incorporating c a p i t a l labour s & s t i t u t i o n i n t o planrling


   C L L ~ S .




                  The neo- classical alt&rnarive to asset redistribution is

 to try and operate on the levels of r e a l rewards and employment levels.

 The success of such policies depends c r i t i c a l l y upon the feasib:ility
                                                                                            *
                                                                                           'i
 of altering x ~ r k e :cquilibriurs s u f f i c i e n t i y to achisve the desirl-a re-

                    The le a s i b i l i ty of L-,?L;iires:           approach depznds crr ~ i z l i y
.,,on
 ,-     the f l e x i b i l i t y of t h e eco?.~=y 2s deremined by benaviourai and




b a h a v i o ~ r a lcharacceris t i c s de:ex5~                r L c e ar-d incoze elastlcS z l e s of

cons7aer dezznd whiie technologicai ch:racteristics                                   deternine faccor

s c b s i i t u t i o n p o s s i b i i i t l e s .   The scg?e f o r a i t e r i n g t h e f i n a l equili-

b r i m of t n e economy chrough p r i c e iatervention depends on these parameters.

This is e s s e n t i a l l y an e ~ p i r i c a lquescion and one f o r which no s i n p l ~ e

znswer can be provided.                        Frequently while policy makers deuiand evijence

economists c a do l i t t l e m r e tha7 ask f o r a c t s of f a i t h .                        We s5ouid

recogcize however t h a t neat neo- classical r e s u l t s based on factor p r i c e

intervention o r r e l a t i v e output ? r i c e intervention w i l l c o t carry much

weight unless we can be s u r e of t5z s i z e of the various e l a s t i c i t i e s

ii~volved. It is cold comfort t o -know that " the direction of change"

w i l l be r i g h t i f w e cannot be very confident about the zmounts involved.

Sate t h a t t h i s problem has a l s o bedevilled analytichl work on eaployment

                                                                                                    I
?ror,otion . w e p t t h a t lt is nore serious when the objective is income

 cist.ribution thsn when i t                       A Le;;a>ia:-~ent. This is because high e l a s t . i c i t i c s

of s u b s t i t u ~ i o nbeween c s p i t ~ l2;- LaScar a r e a f t e r ali only a mixed
                                                                       -
 bLes.,~:-,< i f increaJec rizplo;r;,en~                  AS  a-ly  ~ L , - L I C Yac~
                                                                                     ~  t h e c o s t cf lcwer
                                                                       w

                           i n t h i s cor-:ex~, i:              is XO~L?,    c o t i n g chat e x ~ e r i z e n c swLc:;

        ? l a i - ~ i nuio2rls incorporazli.g r ~ a s o n s b i epsrenecers f o r de-iiicd ar-c Tro-
                           ~

        l u c t i o n f l e x l j i l i t y co c o t SuggeSK t h e r r e l a t i v e p r i c e intervenclon offer;

        auch hope f o r a l t e r l G g t h e c i s t r i b u c i o n of incoze e i t h e r v i a d e ~ z n d

        cnznges feeding back on procuction o r even v i a d i r e c t substitution

        52tween c a p i t a l and labour.                     Thus Chenery end Raducnel i n experrlzenring
                                                          --,
                                                           1/
        w i t h such a nodel cor.clude:


                               "In the f i r s t place the possibilities for indirect
                                 f a c t o r s u b s t i t u t i o n v i a dertand and t r a d e nay a o t
                                 be e x t e c s i v e enough t o accoinmodate very wide
                                 v a r i a t i o n s i n f a c t o r proportions.              Secondly, t h e
                                 f e a s i b l e rsnge of v a r i a t i o n is made considerably
                                 narrower when w e consider tfie implications of t h e
                                 e q u i l i b r i w n f a c t o r p r i c e s f o r t h e d i s t r i b u t i o n of
                                 income between c a p i t a l and labour."



        These r e s u l c s lead t o highly p e s s i m i s t i c conclusions on t h e scope f o r

        promoting income d i s t r i b u t i o n v i a market i n t e r v e n t i o n .                         I f w e a r e t o

        b e l i m i t e d t o d i r e c t f a c t a r s u b s t i t u t i o n , labour s u b s i d i e s o r s i s i l a r

          ,--lea ifitervention w i l l                  have t o be confincd t o those s e c t o r s with

         e i a s E i c i t i e s of s u b s t i t u t i o n g r e a t e r than one.            Undoubtedly t h e experi-

        nen t a l i x d r c i s e described above inay i o s e considerable f l e x i b i l i t y through
P.*
         aggregation but n e v e r t h e l e s s the r e s u l t s a r e samewhat sobering.

                            The above characeerisation of a s s e t r e d i s t r i b u t i o n and x a r k e t
     -
         i2tervri;tion p o l i c i e s as p c l ~ ro ? ? o s i t s s docs n o t of course imply ;hat
    *-                                                                                                                        ..P-
          LTL  CCO.-IG;~~      w i d e c';,oicz ~ u s :'se ;n;ie fa: one or t h e other a;>?roac;,.                                   A X



          f ~ c we woiiic ex2ect
                   t                               ;~I,I: cne o r rhe o:ur             r i p p ~ 3 a ~ a?i, g ' f i ~5~ :;o:L:    ~ ~ i . t i - 3 1 L -




        - 1/     "Substicction i n . ?lar,r,ing ~ o d c l s " ,Xollis 2 . Ci-,enery and '~'il;.;r:.                                      2.
          ~ ; ~ d ~L. L~iales :Lr;~ l:level::?zeac
                               ~. t. ~               ,               IJia::n.i?&       ed. ri. 3. Ckenery, Ilar-br6-i?.
                                                                                             . -
                             L,+   -

         Gnivcrsi ty Press, L 371.

f c r ,ar:icc;ar     i r o c c c ~ i ~secLsr= depxdlng u p m vzrious c k a r z c t e r i s i i c s
                                           n



              -  cne produciiox scrccrure of the ssccor and rhe degree

                 c r   f a c t o r sujsz%rczability which d e i e m i n e s f l d x i b i l i t y

                 the t i s c z i j u i l v e = t z r a c t e r of rke s e c r o r incicding existing

                ?zrterns of a s s e t cor.centracioa (particularly iaportanr

                 in ihe casz of 1&?6 i n agriculture o r n a t u r a l resources i n

                 s i n i n g a d extraczive resources)

                 relationship of t h e sector ro t h e procuction equilibrium

                 of t h e rest of the zconomy.                   Output losses following from

                 d i s t r i b u t i o n a l policies may be p a r t i c u l a r l y serious f o r

                 "key sectors" where the ecoaony caanot adjust easily in

                 response t o such losses.                    (Exports a r e an example).

As these c h a r a c t e r i s t i c s vary substantialiy across countries we would expect

the aptimun s e t of d i s t r i b u t i o n policies to vary accordingly and finding

t h e optimum s e t is a z a j o r ?l&i;,iag probiem.                I n the absence of f o r m 1

zodels these choices rill obviously be made on t h e b a s i s of informai

                                                                I  t

evaiuation strongly coilditlonel bjr socio-poi.itica1,                          h i s t o r i c a l , idco-

     fl        A v a i l ~ b 1 e?l&':-i:~O          "           ~ Z ~ S


                         In ths ~ r e c s l i - gsecrLx.s de i-.zve ontlined che kind oC ~ o l i c y


     ~ 3 ~ o i c ems G s c r a c e g i c a i c e r . ~ z t i v e s tnzz nsed LO b e incor2orared inzo

     ?;arming xodels.                  6 e hzva               E S S ~ Z ~     thraajhouc c h ~ t         C ~ C" ideal ?l&nnkg


     nodel" I n c o i ? o r r t i n g a l l cksse c3oices is r,ot a t p r e s e n t a p r a c t i c a l r e a l i t y .

             nexr arep i s LO c c c s i i a r how f a r zvaLlable planning a o d e l s i i l m i n a ~ e
     m.




      ? a r t i c u l a r c k o i i e s r e l e v ~ c ct o Lacore J i s ~ r i b u t i o no b j e c t i v e s .                  i n z h i s

      s e c t i o n w e w i l l d e z l j r i e f l y wich two f d i i a r ty?es of models--in?ut-output

      nodels and l i n e a r p r o g r a m i n g ~ o d c l s .

      ( i )     In~uz-CutpccHodels -, Usefulness or' Consistency Planning

                         The l i n i c a c i o n s of t h e s e u.odels a r c w e l l known.                           For onr purposes

      they a r i s e from (a) exogenously gLven t e c h n i c a l c o e f f i c i e n t s which niake t h e

      treatment of e n 2 l o p e n t g e n e r a t i o a highiy d e t e r m i n i s t i c given p a t t e r n s of

      f i n a l demand and (b) t h e absence of a Lizk between f a c t o r p r i c e s and personal

      incoae d i s t r i b u t i o n and thence                           LO  incoze-wise disaggregated consumption

      demand patterns. Various a t t e q t s have 3een made t o extend t h e g e n e r a l i t y

      of t h e s e aodels on both couacs b u ~t h e s e have n o t s o f a r been r e f l e c t e d i n
                                                    /
                                                           -       -
            -.., .,--....- . ....\;5~.g2.      -1
                                                           111    i i i c ~.,ock ux=znsions a r e q u i t e f e a s i b l e i n n,;ny

       c o u n t r i e s and would enable t h e s e nodels t o b e used f o r s e v e r a l types
                                           *                                                                                              0;


     l ' c ~ n ~ i s t e n cexercises1' i n evaluating t i e imp!.ications
                              y                                                                                 of a l t e r n a t i v e d i s -

       t r i b u t i o n a l strategi.es        .                                                               -
                                                                                                                '2
             -                                                                                                  --
                          ~ n nost obvious iy?es of q~2s:ions tharr can%e examined throug:.
                                 e
                         -3




I
             -
       in;wC-oiit?iit          ~o:~.si.,~~;.cyzcdei; a r e ~ t "resource-usc"~a?lications ofe
                                                                                                 -               m


                                                                                                                                 -.,--...*
      - 1 /    1;or ;:2c ~~~~---,~--;,~i~~, ~f ~~~i;~~-i~~>-.~y s l < ~ ~ = i ~-y~. t L-.,yLiL-"LLr,uL.
                            .c:*?-..cry
     .      . .                                     ..                                                                               ~ i ~-..=
                                                                                                                           lrL
                                                                                                                     & L                        0 - - .  A

                                                              ,                                                     . -
                                                                                                               ,
                                                                          ~ 3 .   ~ i t . 3:. ..."     desina             c i e r c i.rc sc'i-rral
       - 7 ,
       i.,,2a~-s se.2                      ~ c : :itzcxct.l
                                               5
                                                                                                                  S I C; ~
       ac te-apts a:         cerivi:;;:      i- ----.,                                                                                          .
                                                                          A-

                                                I . ~ ~ . L . . L  c. ~ s ; T ~. -D L ~ ; ~ . jjr
                                                                      .               .       - , ii:coae c i . 2 ~ 5from     VS;UL     a a.s ~ ~S;:G
                                                                                                                                          .            :

      w ~ g c - e ~ ~ ? i ~ y ~ e n :la.:;.         S2c f o r exrizipie -3. !<elss;topf "A xci:i-Sec;or
                                                                                    -     .                                              Si-::ul:-tion
                                                                          . -
      xodel of Zi?loy-rr,enr, Srs-it;?,                               E;;G   ,tlccz- 'Jistributior. i n Puerco Xico" (Xiceo)

              - -
=--.ic--srrs ~z~.,~edaa z . 1 ~ 2~ i s t r i 5 ~ c i ca:.< growt;-, Ere g r e a t l y exa2geratdd
                    ,             I                                           n

                                    ..     .
k<ca.:sz       incoas ~Lsrrl2ui;on whlle it                              ~ A V O ~ V ~ Ssoze costs a l s o provides off-

s2tzlng advanrages.                  The i o s t faa-liar trade- offs i.n t h i s context is tne

?;rest        on aggregacc s2vi;gs.                           Thus i t is argued chzt zggregate s ~ v i z g sw i l l
  - ?




fall i: the ~ z r g i c a ; s ~ v i r~a t~e s sare higher a t higher incoze ieveis.

hgaixst t h i s it is usuaiiy argued char iacoae r e d i s t r i b u t i o n enabies sub-

s i a n z i a l econony i n the use of scarce resources.                                         This is because incoiae

c l s t r i b u t i o n w i l l s h i f t consumption pazterns i n favour of goods which

figure core prosinently i n t h e consumption p a t t e r n a t lower incocs levels

and it is argued t h a t these a r e sectors with lower c a p i t a l output r a t i o s

sad a l s o lower import i n t e n s i t y i n terns of both intermediate requirement


aad c a p i t a l goods requirenents.                              This speculation has l e d co a s e r i e s of

actexpts t o conpare out?u+ and resource use solutions f o r exogefiously

varied denand pattern changes.                                    We note i n passing t h a t the quantitative

r e s u l t s of these exercises do not seen t o be s i g n i f i c a n t , b u t t:?is is

probably due t o the very high degree of aggregation involved on the pro-

duct-ion s i d e .          'Yypic~llywhereas detailed budget studies a r e avail- ble

~ h e s e;:ave t o be aggregated i n t o very broad categories t o conform with
                                                                                        a

the d e t a i l usually available i n the input- output table.

                                                                                                                                      --
                    S i m i l a r CccsiStci~Cyo x c r c i s e s can b e designed to zxplore thc


. - A L L ~ C ~f s p e c i f i c ~ L C ~ O ~ J I .         C O L - I ~ L T ~ ~ ; ~ ~ ' ~
                                                                               ~ p c nincome d i s t r i ~ u t i o n . Thus
                                                           -                                                                          '5
                                                                                                                                       L



;C    i; iiZCc;.~-,--ly s-..-
                    LILII.        L L L C ~        ~ i l i i tt i i ~b ~ ~ ; ? iory~ - t ; i l ~ O U C S( r n ~ i r . 1food and
                                                                                                                       ~




L        p                .                                                                                -
                             -         I                   '~-r;ic.e;lt ;% :si.rly obvious LA. --                  cic:..cd dcOT~3z~y
                                            ':;.A(.                                                           L

                                                 -
                                                 1/
     ~3   &n F q a r t a n ; c o ~ s t r a i n t .   The c u r r z n t F i f t h Plan e x e r c i s e i n inZia

     s x p l i c i z l y ccdercakcs rhis type of e x e r c i s e by s ? e c i f y i a g z a r g e t chmgea

     ia eons.c;n?~ion levels f o r each                3:   twenily sc?arare coasur;?zion ex2snditure

     c l a s s e s of r h e po?-ai.fion./           The r e s u i i i a g s o l c t i o n f o r r h e s o d e l is ex-

     pzcted t o h i g h l i g h t t h e c u c ~ u tgrowt;? Lmplicztions f o r Lass ccnsliz?~ion

     goods s e c t o r s .      Since a z a j o r use of ixpat-output nodels is t o i d e z t i f y

     inves tmenc Lnplications ( o t a l t e r n a t l v z l a g assunptions) of ? a r t i c u l a r out-

     put p a t t e r n s these e x e r c i s e s do provide a valuable guide t o governnent poiicy

     i n investment resource a l l o c a t i o n               and t i n i n g (whether by p u b l i c s e c t o r

     investment o r c o n t r o i s           c:im  i n c e n t i v e s f o r t h e p r i v a t e s e c t o r ) .

                        The c r i t i c a l weakness of t h e s e types of consistency exercises is

     obvious on r e f l e c r i o n :        they do not t e l l u s very much abouz how t o achieve

     t h e income d i s t r i b u t i o n a l changes whose production iinplications a r e being

     examined.           This is because input- output s o d e l s do not d e a l adequately with

     t h e two key f a c t o r rewards and employment l e v e l s and t h e d i s t i r b u t i o n of

     a s s e t s and labour s k i l l s over t h e population.                     Some a t t e n p t s have been lnade

           t ickle the second problcs by distributing various categories of inco12e
      + -




      ,.,,AL     zA7,d,>refit incone) by s e c t o z over ;he population on the b a s i s of


.    survey d a t a on a s s e t an4 labour s k i l l d i s t i r b u t i o n . (This s t a t i s t i c a l y?-
   I


     l a t i o n s h i p nay be assumed t o b e given i n t h e s h o r t period.)                          The b a s i c ;:roblem



     --
      I/     S e c t o r a l excess dsinands w i l l s p i l l o v e r i n t o t h e i3al:~nce of Payments
     while s e c f o r a l excess s u p p l i e s nay n o t be exportable.                       7k.c absence of
     ?rites obviousby ceprivcs the model of any flexijility                                           :his       r e s p e c t .
                                                                                              II
     -2 /    The I ~ c i z ne x e ~ c i s edces n o t cndo2cns-~slygenertil6 iacoc.c dis;rib~t:o>.
     hcwevcr s o t h a t cazge:              cor,sm;,';ion      chaages i;i.ply specific s o v l a ~ srazes by
      ?ar:icular          c l a s s ~ j . TP.e :L<;UL-C     ;O    incor?crzce i n c o ~ ~ge:.cra=is~~cx;3i:<:lL1AY
                                                                                                  e                               L
      c~:,viousiy r,xkes this e;cerc:sc n; . i n i t ~ dv<ii-ie f o r ?olicy sencc ~c:?ievc                                     2er.t
      of savings targeils & i ; ~ r c ; ~tl,is, is critical.
                                                       c

-
LaJocr lsaves the y a r z s r , of ou:?u=
     -                                               as zhe oniy Ierernlna-it of eaplopeaz
                                                                                                         i
levels.         This r i g i d i t y lezds t o t r c e x l s u s =?:?asis being ?laced u?on t:he

  -&our inrensive ,se!czors" scch as services and constrr?ccion witn frequent
  -
II




references t o r u r a l ce-;zlc?zsat &id            s-dl1 scale industry which are :ypi.cally

~ o separate sectors but re?resex= intra-sectoral choices.
         c

( i i )       Linear T r o g r m i n g Xclels

                 .'l'hese nodels extecd the input- output models by adding technol.ogy

ckoica ('DUEwithin a fixed coefficients framework) and an optimising process.

Thc uses and 1imit;ltions of rhese aodels have been extensively discussed

e i s e w h e1~and our co-dents a r e c:~areforel i n l t e d t o identifying t h e i r
                   /
                  r

p o t e n t i a l contribution t o icc0u.e d;: triburion questioas.             'de note that unlike

input- output models no l i n e a r programining model has been actually used a s

a ?'.anniag model a t the economy wide l e v e l although several such aodels

hzve becn b u i l t as research e f f o r t s .

                   I t is importanr to recognise that lincar programming mdels typicaliy

do nor endogenously generate incose d i s t r i b u t i o n patterns.             They do yield

shridm prices f o r a l l resources that a r e f u l l y employed i n the opcirnal
                               .
                                    t



solution but thesc si~adowpriccr, cnnnot be interpreted as market prices i n

 '-.,-.:r s q s e .      c f f c c t ~ b d s emd2.s do sGmc a useful purFose i n incorporating
            '9
 rilc ,i;lp?;.y s c t r c l z l e ; of Ic5ocr :;..-o the -c~;l,:ificatio;l of f e a s i j i e
            -             . .                                                                       -
            .G



             +
             -                                                                                      E
                                                                                                    I

               11
   choices- but they do not necessarily s i n u l a t e market e q u i l i b r i m f o r

   f a c t o r p r i c e determination.

                      Some attempts have been made i n recent studies t o incorparate

   market equilibrium behaviour in some factor markets i n L. P. models of

   individual sectors.                Thus agricultural s e c t o r m d e l s have been specified

   which incorporate upward sloping supply curves f o r labour.                        The a v a i l a b i l i t y

   of labour is no longer expressed i n t e r n o+ an inequality constraint but

   a s a function of wages which figure as a cost i n simulating market

   behaviour on f a d2 .                 Note t h a t the objective iunction i n these models is

   specified t o simulate competitive equilibrium and does not have a soc:ial

   valuation aspect.              The model can then be solved t o y i e l d employmnt levels

   and equilibrium wage r a t e s along with shadow prices on those resources

   t h a t e n t e r i n t r a d i t i o n a l inequality constraint form.        Such models a r e

   e s s e n t i a l l y simulation m d e l s when the optimising process is directed s o l e i y

   a t finding the cclmpetitive equilibrium.                   They can be extremely useful

   since ~ n e ypernit experimentation with a l t e r n a t i v e solutions gi~rend i f f e r e n t

   types of distributional cons t r a i n ts o r o t h e r policy interventions                 .    Thus

C
   land a v a i l a b i l i t y constraints f o r d i f f e r e n t farm s i z e s can be a l t e r e d in'


                                                  -
   -
   1/      Scc the paper on "Ernployrr~tPlanning Methodology" hy C.                      Blitzer imd
                                                  -
   L. Taylor submitted f o r the Wdrking party.

                                                  C
   -
   2 1 This approach was followeddn the specification of CHAC, a s t a t i c programLng
   model f o r the a g r i c u l t u r a l s e m o r i n Mexico.

cjnsrr a l n t s    .      Si-Al;:r:)-   prices f o r varlzbie suppiy resources cai; 5 e

~ _ c c r z c;-o yLel~d:c=~rr;&civcs i ~ d a t 5 c r . s .



 canslGe:a~lsr-s I n r a zke otjeccivz 5cccrioz.                       T t i s Is not ?.owever an cver-

u:~eirnin; loss.               Inderc tke sinuia:ion       of a i t e r c a t i v s p o s s i b i l i t i e s described

 above nay well be the East useful analytic21 t o o l especially when differ-

 CIZ     dicznsions of the d i s t r i b u t i o a problea nay be relevant a t different

 tines       --    productivity on stall vs. large farms?                    e n p l o p e a t of hired l a o c ~ r ?

 .-ural-urban wage equalisation by Lixed ninimun wages?



                   ( i i i )   Geileral Equilibri-im Model:~

                   Tne next step i n m d e l 'building is obviously i n the direction


 or' general e q u i l i b r i m models and sane of the f i r s z atteqrs in this

 direction have only recently been unveiled.l/                          kTe reseerve co-nts                  on these

 m d e i s on he grounds t h a t the r a i n i n t e r e s t in t h i s f i e l d az t h i s stage

 is conceptual and algorithdc.                      For some tire t o cone these models w i l l

 Lave a p r i r a r i l y pedagogic (although not uni.mportalAt) r o l e and t h i s is
                                                                                                                 .
                                           C                                                                         e

 v , l t s i i e c'nc :;co?e of t h i s pa7cr.




    /                                      .        of Kom: : E'actcr.; . 2 f f c c t L s i'ne 3is trib.ccLon
                                                                                             -
 .-      Scr "A ?;<cro-~cor.cx-;.::oc:cl
 ~f    i ; l c p i : i;;    ti;^ S?.O;': ;i;ill'l,by I . Alei:ar.h 2;lC.S. L c ~ ~ ~ I s JQs n ~, a r y ,2373;
                                                                                                         ~
 :,<;>el-     .~3rij--~d far L?.C 3iLlagi.s :<a~k<r,j? z r ~ y .

     (V)         Cznclcsc~ns

                 Oxr qe:leral cor,clus:o~s cL the r c l e of p i a n ~ i n gnolels i n i1 i u i n h z L n g

        - .
     ?o,:cy      :k-.oices relevinc f o r inccze ciscribur5on 32y be s - a a r i s e d as f o i i o ~ : s            ~


                  ( i )   The available areas of intervencior, a r e amerous and may be


                          divided broadly i n t o two approaches:            a s s e t redis tribu,tion

                          ecc azrkrr iazervenrion i n functiocal incoice determinatioa.


                          Sx;>endir~re?olicy provides zn op?ortunity t o coiiibine Soch

                          approaci-es .znL also u d e r t a k e "marginal consun?tion traasf ers."

                ( i i ;   Both a s s e t redistribution and ~ a r k e tintervention have t h e i r

                          i i m i t a t i o n s and associated costs.     The s u i t a b i l i t y of one ~ p p r o a c h

                          o r the other w i l l depend upon other "stru.:tural                  factors''


              ( i i i )   So econoriy wide planning madel exists which w i l l s u f f i c i e n t l y

                          quantify the e f f e c t s of a l l the various policy alternatives.

                          Certainly these alternatives cannot be c a s t i n t o an optimising

                           framework f o r planning purposes.

                                                                                                                    -
               (iv)      Some p a r t i a l o r "consistency" type exercises csn be conducted---

                          using available planning.models of the input- output type and a l s o
      ".  ..
             '

                          L.?.     models.       A major problem with these exercises is that :hey


                          do not focus on the key i s s u e of how t o change incone d i s t r i b u t i o n ,

                          except f o r some f a i r l y star,dard *escrip tions, e. g., emphasising

                          "labour intensive sectors or undertaking land reform.
                                                                                                                         -
                                                                                                                         -
                       These conclusions &oulc not be classed as "pessinis tic." Thcy
                                                                                                                        .*
     ~ l r esinply a r e f l e c t i o n of        he  entirely plausible p r o p o s i ~ i o nthzt we 'krAow            -
                                                                                                                         L


*                                                                                                                        *
                                                                                                                         b
      r c l a ~ i v c l yl i t t l e &bout t h e 9 r u e long t e r n strx.:turai f l e x i b i l i t y of the
                                                                                                                         e


      ecoaon:gr     i n gsneracing a i c ~ r a a t i v cincoce dis2ributioa pztterns.