Applied welfare analysis for consumers with commodity income

Summary The paper analyzes the relevance and validity of the economic surplus concept for consumers receiving their income in commodities. For these consumers, such as farmers in developing countries, it is shown that the measure of welfare gains or losses via the area under the Marshallian demand and supply curves may lead to a considerable error. The paper provides boundaries for the error of approximation as a function of the share of the product in the consumer's budget and the income elasticity of demand.     

Decisive sets,majority voting and the existence of a group preference function

Summary The constitutional process in a democratic society is examined by analysing the role ofdecisive sets in determining the preferences of the entire population. Firstly we consider the properties of sets which emerge from a group preference function satisfying the four conditions set by Arrow. Secondly we reverse the analysis and define first a set of desirable properties of the decisive sets. We then prove that under these fairly general conditions a group preference function exists for which all four of Arrow's conditions are simultaneously satisfied.I wish to thank Peter Newman, an anonymous referee and the editor of this Journal for helpful comments.     

Semi-rational expectations and exchange-rate dynamics

The Rational Expectations Hypothesis (REH) asserts that, on average, the economic agents are accurate in predicting future economic developments. The paper demonstrates, however, that in a world of costly information, individual rationality may result in consistent and persistent forecasting biases. A distinction is drawn between perfect foresight or efficient forecasting—which is consistent with the REH—and myopic perfect foresight—which is the profit maximizing, and thus the rational one from an individualistic point of view, even though the latter may result in persistently biased forecasting. These concepts are illustrated in a model of exchange rate dynamics which introduces myopic or ‘semi’ rationality into Dornbusch's familiar model.     

Agricultural development through contract agents ‐ appropriate for smallholders?

Agriculture in developing areas of South Africa has undergone much experimentation as recommended by academics and administrators. Notwithstanding the latest moves towards a more representative government, which may usher in the rediscovery of individual initiative, present policies are largely responsible for the underdeveloped state of agriculture among the black community. The top‐down approach (whose existence is denied by policy‐makers) is evident even in quasi‐govemment and private agricultural management agencies. This and the wanton control of resources by these institutions has led to retreat by small‐scale farmers. Promotion of agriculture in the black community through highly centralised, administered projects has proved unappealing. The country's policy‐makers have not taken heed of the argument that ‘The poorer and more exposed one is, the more one becomes aware of sustainable survival techniques. If an outsider tells one how to survive, then that is the start of one's downfall.     

Community Targeting for Poverty Reduction in Burkina Faso

This article develops a method for targeting antipoverty programsand public projects to poor communities in rural and urban areas.The method calls for constructing an extensive data set froma large number of sources and then integrating the entire setinto a geographic information system. The data set includesdemographic data from the population census; household-leveldata from a variety of surveys; community-level data on localroad infrastructure, public facilities, water points, and soon; and department-level data on agroclimatic conditions. Aneconometric model that estimates the impact of household-, community-,and department-level variables on household consumption is usedto identify the key explanatory variables that determine thestandard of living in rural and urban areas. This model is thenapplied to predict poverty indicators for 3,871 rural and urbancommunities in Burkina Faso and to map the spatial distributionof poverty in the country. A simulation analysis assesses theeffectiveness of village-level targeting based on these predictions.The results show that such targeting is an improvement overregional targeting in that it reduces leakage and undercoverage.     

Cardinal criteria for ranking uncertain prospects

The purpose of this paper is to develop criteria for comparing and ranking uncertain prospects when we have some information on the extent to which agents are risk-averse. The basis for these comparisons is the value of the certainty equivalent outcome of the corresponding uncertain prospects. Clearly, the ranking established by the values of the certainty equivalent outcome is identical to the ranking established by the expected utility of the outcome. By comparing the former values, however, we can determine not only the ranking of the uncertain prospects under consideration but we can also determined by how much one prospect would be more valuable than the other in terms of money – for that particular agent. The paper develops expressions for approximating the values of the certainty equivalent outcomes on the basis of the central moments of their distribution and the value of the underlying coefficient of variation. These criteria are then applied for comparing alternative crop rotation and irrigation practices of wheat in Israel.     

Approximation methods for ranking risky investment alternatives

The paper develops and illustrates the application of criteria for ranking risky investment alternatives that are based on their certainly equivalent (ce ) outcomes and determines expressions for approximating the ce outcomes by means of the central moments of their distribution. The paper develops criteria on the basis of the ce outcomes for determining a complete ranking of risky investment alternatives that can represent the choice of many – though not all – risk-averse agents.